Why trader is selling calls in Ocwen
David Russell | [email protected]
optionMONSTER's tracking programs detected the purchase of 2,525 October 40 calls for $8.50 and the sale of an equal number January 47.50 calls for $5.30. Volume was below open interest in the October 40s, indicating that an existing short position was closed and rolled to the higher strike.
The trader probably owns shares in the red-hot loan-servicing company, which is up more than 160 percent in the last year. Selling the options against the stock earns income and reduces volatility, creating a position more akin to a conservative investment in a telecom or utility. (See the discussion of covered calls in our Education section)
OCN is up 0.79 percent to $46.10 this morning after touching a new all-time high above $47 earlier in the session. Ocwen is the leading company in an emerging industry that services mortgages on behalf of big banks in response to the 2008 subprime crisis.
Today's short-call roll cost $3.20 but allows the investor collect an additional $7.50 while holding his or her shares. Swapping to long-dated options allow them to earn income from their greater time value.
More than 10,500 contracts have traded in OCN so far, roughly double the average amount.