Bulls sign up with Nationstar Mortgage

By David Russell,

Shutterstock photo

The bulls are piling into Nationstar Mortgage as the stock makes new highs.

optionMONSTER's monitoring systems detected a block of 2,600 January 20 puts trade for $2.95. That was the bid price at the same, indicating that the contracts were sold.

Investors sell puts when they like a stock but don't want to expend cash getting long. It allows them to collect a credit in return for providing protection to other traders.

In the case of yesterday's activity, the trader will have to buy NSM for $20 if it closes below that level on expiration. But including the credit earned, the entry price would be $17.05.

Put selling often occurs when a stock is rallying hard because it prices in the possibility of a pullback. (See our Education section for more ideas on how to manage entries and exits using options.)

Investors also purchased about 2,300 January 22.50 calls for $3.70 to $4.10 throughout the session. Those trades reflect a strong belief the stock will keep rallying into early 2012.

NSM rose 4.09 percent to $22.40 and is up 60 percent since going public at $14 in March. The company has been gobbling up servicing rights on residential mortgages in hope of a turnaround and now stands to grow fee income as refinancing accelerates.

Total option volume in the name was 5 times greater than average.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

Copyright © 2010 OptionMonster® Holdings, Inc. All Rights Reserved.

This article appears in: Investing Options
Referenced Stocks: NSM

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