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Buy-write boosts Bank of New York Mellon call volume

Amid a relatively unchanged market, implied volatility appears to be declining. We can see one example through options action in The Bank of New York Mellon Corp. (NYSE: BK ) , where we see call selling action tied to long stock positions as part of a buy-write strategy.

BK shares dropped 29 cents, or more than 1%, to $25.41 during midday trading. The company did not announce any news today to account for the slight decline. BK shares are trading roughly 5% higher than their 52-week low of $24.13. On July 20, BK announced second-quarter earnings of 55 cents per share.

Between 9:46 a.m. EST and 12:11 p.m. EST, several blocks totaling roughly 5,200 January 2011 28 calls changed hands for an average price of $1.15 per contract. This price was the bid at the time of the trades. Current open interest in these out-of-the-money (OTM) calls is 12,000 contracts. This options action suggests the investor could be selling to close the calls. In fact, we saw the exact same BK buy-write trade on July 13. A closer look at time and sales of the trade today shows this investor tied a long stock position to the call action.

At first glance this type of options activity appears to be moderately bearish. But with the stock position, this is actually a moderately bullish play. For every one contract sold, the investor also bought 100 shares. Implied volatility of the January 28 calls is 30% compared to the stock's 30-day historical volatility 32%.

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


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

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