Discovery Communications has been grinding sideways for more than a year, and one investor wants to wring some income from the passage of time.
optionMONSTER's tracking programs detected the sale of 3,733 October 40 calls for $1.45 and the purchase of an equal number of September 40 calls for $0.30. Volume was below open interest in September but not October, which suggests that an existing trade was rolled from one month to the next.
The position in question, however, was to be short the calls rather than long. This suggests that the investor owns shares and is using the options as part of a covered call strategy, which lets him or her earn income while limiting their upside in the share price. (See our Education section)
In the case of yesterday's trade, the investor collected a net credit of $1.15. If the stock grinds sideways for the next year and the trader keeps rolling the calls, it would translate into a yield of more than 30 percent. If the stock closes above the strike price on expiration, the investor will be forced to sell shares at that level.
DISCA rose 0.91 percent to $40.13 yesterday and has spent most of the last 12 months trapped between $38 and $44. The company owns media outlets such as Discovery Channel, Animal Planet, and TLC.
The call roll pushed overall option volume in the name to 12 times greater than average.
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