Why trader is selling calls in Beam
David Russell | [email protected]
optionMONSTER's tracking programs detected the sale of about 15,500 June 70 calls for $0.60. Volume was more than triple the previous open interest at the strike, indicating this is a new position.
The investor probably owns shares in the company and is selling calls to earn income. That lowers his or her cost basis and reduces the volatility of the position because the calls will lose value if BEAM declines.
If the stock reaches $70 on expiration, the investor will be forced to sell the shares. But that is also about 13 percent higher than its current price. (See our Education section for more on the strategy, known as a covered call.)
Shares rose 0.99 percent to $62.03 on Friday. Beam was formed in October 2011 when Fortune Brands split into two companies. It rallied for nine months after the transaction, and has been consolidating since. Earnings have been consistently positive amid strong demand for its bourbons, which include Jim Beam and Maker's Mark.
Total option volume in BEAM was 23 times greater than average in Friday's session.