What bull sees in Equity Residential

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Equity Residential has been grinding higher since the late summer, and one investor is positioning for more upside.

optionMONSTER's tracking systems detected the purchase of 3,674 January 50 calls for $1.10 and $1.15. Two blocks totaling 7,000 contracts in the February 52.50 calls were sold or $0.80. Volume was below open interest in the January options, suggesting a short position was closed and rolled to the higher strike.

EQR EQR rose 0.24 percent to $51.02 in late morning trading. The real-estate investment trust more than doubled between July 2009 and July 2010 but has been advancing at a snail's pace since then. It's been grappling with a key resistance level from early 2007, when it plunged through $52 and then rebounded, only to roll over and continue significantly lower.

Today's option trade was probably the work of an investor who had sold the calls against a long position in the stock. Rolling the position higher will let them collect an additional $2.50 of upside if EQR closes at or above $52.50 on expiration.

It was somewhat unusual because the trader roughly doubled the number of contracts, which will allow him or her to collect a credit of $146,675.

Positions such as this are common in REITs, where investors have recently been owning the stocks to collect dividends and selling the calls to earn extra income. The strategy essentially creates a position that resembles a fixed-income position, with modest risk and limited reward.

Total option volume in EQR is 86 times greater than average so far today, with calls outnumbering puts by more than 490 to 1.

(Chart courtesy of tradeMONSTER )




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

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



This article appears in: Investing , Options

Referenced Stocks: EQR

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