What's behind call selling in Ares

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One investor is using options to spice up a slow-money trade in Ares Capital.

optionMONSTER's tracking programs detected the sale of 2,230 September 18 calls for $0.70 and the purchase of an equal number of March 18 calls for $0.55. Volume was below open interest in the March contracts, indicating that an existing short position was rolled forward in time.

The investor probably owns shares in specialty finance company and is using the options as part of a covered call strategy. Adjusting the trade let him or her collect an incremental $0.15 credit in return for holding the stock for an additional six months. (See our Education section for more on how options can be used to manage trades.)

ARCC has been paying dividends of about $1.70 annually. Selling the calls allowed the trader to boost that amount by about $0.30, raising the yield to almost 11 percent from 9.2 percent. It also provides some protection against a potential decline in the share price.

The stock fell 0.24 percent to $18.47 on Friday. Ares' portfolio companies operate in an array of industries including health care, restaurants, and telecom carriers.

Total option volume in the name was 11 times greater than average in the session.



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: ARCC

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