Calls Spike as Small Cap Goes Mobile: Options Recap

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Last month, Market Insights highlighted a surging maker of smart-phone games. Yesterday, options traders lit up the name.

Here’s a breakdown of the large transactions detected in Glu Mobile (GLUU):

  • A block of 5,500 September 5.50 calls was bought for $2.04.
  • A block of 5,500 December 5.50 calls was sold for $2.17.
  • A block of 2,500 September 6 calls was bought for $1.54.
  • A block of 2,500 December 6 calls was sold for $1.77.

Volume was below open interest in both the September contracts, but not the Decembers. That suggests existing short calls were closed and rolled forward in time. But why?

It’s likely to investor owns shares in GLUU, which ripped 6.11 percent to a new 52-week closing high of $7.47. He or she had probably sold the September 5.50s and September 6s as under covered-call strategies in previous sessions.

GLU Mobile (GLUU) with moving averages and options volume.

Given how much the stock has rallied they now face the risk of being forced to fork over their holdings next month. Rolling forward in time will leave their positions open for an additional three months.

It also allowed them to collect more premium. They tookin $0.13 more at the 5.50 strike and $0.23 on the 6s. That might not seem like much but would be equivalent to dividend yields of about 7 percent and 12 percent, respectively, if repeated every quarter. See our Knowledge Center for more on how options can let you turn time into money.

Another potential benefit of the covered-call strategy is that, unlike holding a dividend stock, there’s less downside risk. After all, they won’t lose anything as long as GLUU remains above the strike prices. But on the flipside, they also don’t make anything from the shares moving higher.

The short-call roll pushed overall option volume in GLUU to 16 times the monthly average in the session, according to TradeStation data.

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David Russell is VP of Content Strategy at TradeStation. Drawing on nearly two decades of experience as a financial journalist and analyst, his background includes equities, emerging markets, fixed-income and derivatives. He previously worked at Bloomberg News, CNBC and E*TRADE Financial. Russell systematically reviews countless global financial headlines and indicators in search of broad tradable trends that present opportunities repeatedly over time. Customers can expect him to keep them appraised of sector leadership, relative strength and the big stories – especially those overlooked by other commentators. He’s also a big fan of generating leverage with options to limit capital at risk.