(This is an excerpt from an article I originally published on Seeking Alpha on February 12, 2012. Click here to read the entire piece.)
Perhaps I should all the recent call option activity in Lender Processing Services (LPS) should not surprise me given a massive foreclosure deal between banks and federal and state governments arriving ahead of earnings on February 13. However, after seeing single-day large call volume in December and then again on February 6, I was caught off guard observing yet another surge in call action on February 7. This time, 1200 calls traded on the March $18 strike. Open interest at this strike is now 4,991 call options.
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Given the lukewarm reaction to this latest scramble for calls, I began to wonder whether the primary motivation for the call volume was to capture risk premium ahead of earnings and/or covered call action to hedge existing shares. Accordingly, I decided to sell March $17 calls against some of my own stock.
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Be careful out there!
(This is an excerpt from an article I originally published on Seeking Alpha on February 12, 2012. Click here to read the entire piece.)
Full disclosure: long LPS shares and short calls