5.06.2007

Uncovered Calls?

So as you may have or have not heard, News Corp. ie, Fox News, Myspace.com, Simpsons etc...made a bid to take over Wall Street fixture Dow Jones of the Dow Jones Industrial Average/Wall Street Journal fame. Coming out of all this it seems though the Regulators like the SEC are beginning to check out an unusually high volume of call contracts.

A call contract is basically a deal that two parties put together so that one gives the other some money for the ability to buy stock later at a fixed price. So say you purchase the call option to buy Company A for $10 and the contract costs $1, and on the call date the stock is trading at $15 you get instant $4 profit. If the stock is trading less than $10 then you just lose your $1 contract cost. Simple enough?


Apparently, they've discovered a high volume of call contracts written. According to Reuters.com "September 45 call options traded 3,464 contracts in a range of 30 cents to 35 cents, while 641 of the June 40s traded at 25 cents." The average amount of March trading was 85. Looks like some people may have had a little insight that a big acquisition attempt was coming up and saw a chance to make their customers some money. That could be a profitable email list to get on...

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