Options Trading News

August 22, 2013  Thu 3:16 AM CT

Traders are positioning for another potential drop in Yum Brands.

More than 4,600 September 70 puts traded in a heavy buying pattern, led by a print of 2,005 that went for $0.90, according to optionMONSTER's Depth Charge tracking system. Open interest in the strike was 1,260 contracts before the session began, indicating that yesterday's trades are new positions.

These puts lock in the price where traders can sell the stock no matter how far it might fall in the next month. They could have been purchased as a hedge on a long-stock position or as an outright bet that shares will take leg down. (See our Education section)

YUM slipped 0.59 percent to close at $72.21. The restaurant company, whose brands include KFC, Taco Bell, and Pizza Hut, gapped lower on Aug. 13 after reporting weak sales in China and has been trading sideways since.

Total option volume in the name topped 10,000 contracts yesterday, more than triple its daily average for the last month. Puts outnumbered calls by 7,187 to 2,976.
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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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