Rackspace trade turns time into money

By David Russell,

Shutterstock photo

One investor is turning time in to money, using tech stock Rackspace Hosting.

optionMONSTER's monitoring programs detected the purchase of 1,500 December 37 calls for $6.72 against open interest of 2,381 contracts. A block of 1,500 March 38 calls was sold at the same time for $7.64, resulting in a net credit of $0.92.

The investor probably owns shares in the company and had previously sold the December contracts to earn income and manage risk in a covered call strategy. (See our Education section)

Friday's action rolled the position to March, which continues the trade for another three months longer. In addition to the $0.92 credit, the investor also gained the right to collect an additional $1 of upside on the stock by raising the strike price at which his or her shares must be sold.

Covered calls are a common way that investors manage risk and are frequently done in names such as RAX that are in steady uptrends. The interesting thing about this option trade is that strike prices are deep in the money , which means that the investor's gains are protected even if the stock falls significantly.

RAX climbed 3.99 percent to $44.02 on Friday and is up 46 percent in the last year. The company, which provides data-hosting services, has beaten estimates the last two times it reported results.

Total option volume was twice the average amount on Friday, with calls accounting for almost three-quarters of the activity.

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: RAX

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