Options Trading News

October 11, 2013  Fri 11:21 AM CT

ResMed is trading at all-time highs, and one investor is apparently looking to protect those gains.

A trader bought 2,500 November 55 puts for $2.55, above the listed ask price at the time, and sold 2,500 November 45 puts for $0.20. This is clearly new positioning, as previous open interest at those two strikes was 20 and 0 respectively.

The trader is spending $2.35 to open this vertical spread. The sale of the lower-strike puts reduces the cost of the higher-strike purchase, though  it caps gains once the stock is at or below $45. The maximum potential gain on the trade is $7.65, but the trader would face the obligation to buy shares if the stock falls below the lower strike.

Given how far ResMed has run, the put spread could well be hedging a long position rather than making an outright bearish bet. (See our Education section)

RMD is up 0.54 percent to $56.21, a new lifetime high. Shares of the company, which makes medical devices for the treatment of respiratory disorders, were at support at $44 in early July.
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The covered call and unhedged risk

I have written a few things on the Covered Call Strategy over the last two weeks. Please understand that those two previous articles plus this one do not constitute a proper, fully in-depth lesson on the Covered Call Strategy like we have in our classes at Option Monster Education. I have picked out a few topics that I believe were worth noting and today I am going to add the final one.

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