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Time decay is key to call selling in ABB

One investor is looking to squeeze a few pennies out of Swiss industrial ABB.

optionMONSTER's tracking systems detected the sale of more than 3,000 January 21 calls for $0.05 against open interest of just 1,776 contracts. The trade obligates the investor to sell shares for $21 if ABB climbs that high.

The stock is down 0.91 percent to $18.49 in afternoon trading. It's been fluctuating between $16 and $20 since the market crashed over the summer, after having peaked above $27 earlier in the year.

Today's call seller probably owns shares and is simply looking to earn a small amount of income from the passage of time . If ABB goes back to $21, he or she will be forced to sell but will take a gain in the process. If it stays below $21, the calls will expire worthless and the trader will keep the $0.05 credit.

The timing of the transaction is also noteworthy because the contracts will lose value at an accelerating pace as expiration approaches on Jan. 20. If they had waited much longer there probably would not have been any buyers for the calls. (See our Education section)

Overall option volume in the name is 6 times greater than average so far today.

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.

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