Why traders are focusing on 2013


The New Year hasn't begun yet, but investors are already looking far into the future.

Some 310,268 contracts expiring in January 2013 traded yesterday, almost double the total on Friday, according to optionMONSTER's tracking systems. The increased activity, which occurred in stocks such as Microsoft, H.J. Heinz, and Chubb, was noteworthy because it occurred in a session when overall option volume was 6 percent below average.

MSFT The trades reflect a belief that stocks are likely to continue rising over the next two years, following a 19 percent rally in the S&P 500 since mid-2010.

MSFT, for instance, saw the purchase of almost 23,000 January 2013 32.50 calls for $2.33 and $2.40 against open interest of just 6,341 contracts. The software giant closed the session at $27.25 and would need to climb at least 28 percent by expiration for the positions to turn a profit.

CB and HNZ had almost all their activity focused on the January 13 contracts, which are sometimes known as LEAPS (Long-term Equity AnticiPation Securities). Traders bought more than 4,000 contracts in the 75 strike on the insurer for $2, indicative of a 29 percent rally from its $59.65 close yesterday.

In HNZ, the buying focused on the January 2013 55 calls for $2.10. That means the food company's stock needs to climb 15 percent for the trade to turn a profit.

Campbell Soup experienced similar activity at the 40 strike, where a block of 4,761 contracts was purchased for $1.80. The shares closed at $34.52, and need to appreciate 21 percent by expiration for the trades to turn a profit.

Overall volume was more than 13 times greater than average in CB, HNZ, and CPB.

Investors can use long-term calls in at least two ways. One is lock in future prices where they wish to own a stock. For instance, a portfolio manager may expect to receive more funds at some point over the next 1-2 years and wishes to hedge against the shares rallying before they're ready to buy.

Alternatively, the calls will appreciate from the underlying stocks moving higher, even if they don't reach the strike price. See our Education Section for more.

(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: CB , HNZ , MSFT



More from optionMONSTER:

Related Videos



Most Active by Volume

  • $15.56 ▼ 1.46%
  • $7.62 ▼ 1.93%
  • $27.25 ▼ 0.11%
  • $124.75 ▼ 1.13%
  • $8.79 ▲ 1.27%
  • $58.42 ▼ 2.09%
  • $41.615 ▼ 1.29%
  • $106.01 ▼ 1.56%
As of 4/17/2015, 04:15 PM

Find a Credit Card

Select a credit card product by:
Select an offer:
Data Provided by BankRate.com