A generic image of a pen, a tablet and papers
Markets

REIT fund attracts upside strategy

Real-estate investment trusts have gotten crushed along with the rest of the market, but one trader doesn't want to miss a rebound.

optionMONSTER's Heat Seeker tracking program detected the purchase of 4,475 August 56 calls on the Vanguard REIT exchange-traded fund for $1.60. Twice as many September 52 puts were sold at the same time for $0.80. Volume was more than 100 times open interest in both strikes.

The trade cost nothing to open and will simulate a long position in the fund, which owns stakes in companies such as Simon Property Group and Vornado Realty Trust. The investor will profit from the calls if it rallies but have twice as much risk to the downside because of the short position in the puts.

The strategy is an example of how investors can mix and match options to craft a position that meets specific objectives. In this case, the trader probably likes the sector and was willing to sell the longer-dated puts.

The investor would have to be willing to buy shares anyway if VNQ pushes below the strike price. On the other hand, if it rallies quickly, owning the calls will prevent it from running away from them.

VNQ closed at $54.90 yesterday, down 4.89 percent. It's now back to levels last seen early this year.

Overall option volume in the fund was more than 40 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 Nasdaq, Inc.

Copyright © 2010 OptionMonster® Holdings, Inc. All Rights Reserved.


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

In This Story

VNQ

Other Topics

Options

Latest Markets Videos