Markets

Why one trader is selling calls in USG

USG has been climbing, and one investor is using options to manage the trade.

Our tracking systems detected the sale of 11,000 August 20 calls for $1.20 and the purchase of 6,852 July 17 calls for $2.55. Volume was below open interest in the July options but not the August contracts, which suggests that an existing position was rolled from one month to the other while increasing its size.

Investors often sell calls when they own a stock, generating income and reducing volatility in the process. The strategy captures the premium of longer-dated options, letting them collect income from the passage of time while holding the position.

In the case of yesterday's transaction, it also prevented them from being forced to sell their shares at the end of the week. (See our Education section)

USG rose 4.46 percent to $20.38 in yesterday's session. The maker of building materials has doubled since the beginning of the year as confidence has returned to the housing industry, and it's now back to about a level where it hit resistance in early 2011. That could be leading some chart watchers to believe that the stock will pause and helps explain the call selling at the $20 strike.

Earnings are scheduled for next Wednesday, July 25. Overall option volume was 7 times greater than average.

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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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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