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 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
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