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Trade alert on UBS call selling

Out of the gate on Thursday, Swiss banking giant UBS AG (NYSE: UBS ) shares hovered around unchanged without any notable news from the company on the wires. Options action suggests at least one investor expects the stock to experience limited upside during the next few months.

During the first 10 minutes of trading, 10,000 December 19-strike calls changed hands versus current open interest of just 83 contracts. These calls crossed the tape for an average price of 75 cents, which was closer to or at the bid price when the volume hit the tape. This options action suggests investors collected a net credit of 75 cents per contract to open short call positions betting that UBS shares will be trading lower than $19 at December options expiration.

The credit collected also represents the maximum gain on these short call positions. If the stock does not climb more than 9% during the next four months, these sellers will keep the entire premium at expiration. On the other hand, if the stock continues to the upside and soars higher than the strike price, the investor will give back some of the credit. If UBS shares are trading higher than the breakeven level of $19.75 at expiration, the investor will lose money and could theoretically suffer unlimited losses to the upside.

UBS shares were trading around $17.30 as of 10:15 a.m. EDT (relatively unchanged) and outperforming the broad-market weakness. The stock is trading roughly 10% lower than its 52-week high of $19.30, and it looks like an investor does not expect the stock to reach any new highs before December 2010 expiration.

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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