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Exit strategy in CommonWealth

By: optionMONSTER
Posted: 1/9/2014 4:16:00 AM
Referenced Stocks: CWH

CommonWealth REIT has gone nowhere for months, and one investor wants out.

optionMONSTER's Depth Charge tracking system detected the purchase of 5,907 February 20 puts for $0.25 and the sale of an equal number of February 22.50 calls for $0.90. Volume was more than 150 times open interest at both strikes, indicating that new positions were initiated.

The trader probably bought shares in the commercial-real estate company about one year ago, shortly before it ripped from $16 to about $23. Yesterday's option strategy of combining long calls with short puts delays the exit until expiration on Feb. 21, so he or she is probably trying to achieve more favorable tax treatment.

They investor will unload shares for $22.50 if they've above the level on expiration and have a minimum selling price of $20. Including the $0.65 credit collected, the trader will get something between $20.65 and $23.15. (See our Education section for other risk-management techniques.)

CWH fell 1.98 percent to $22.75 yesterday. The real-estate investment trust has mostly remained between $20 and $26 for the last 10 months.

Total option volume exceeded 12,500 yesterday, was 27 times its daily average for the last month, according to the Depth Charge.