Calls lock in the price in investors must pay to buy shares, so they can deliver some nice leverage in the event of a rally. But if the stock doesn’t move, those options will lose most or all of their value.
CNO Financial shares rose 0.5 percent yesterday to close at $10.05, trading at its highest level in about four years. The insurance company has been climbing after announcing a recapitalization plan that could boost earnings. FBR Capital Markets also wrote in a research note not long ago that “CNO is a compelling value play in our opinion with an in-progress capital management story.”
About 3,000 CNO calls traded yesterday versus just 125 puts, a reflection of the session's bullish sentiment. Total option volume was six times greater than average.
—By CNBC Contributor Pete Najarian
Additional News: The Top Bank Stocks in Wake of QE3
Additional Views: PNC Is a ‘Unique’ Bank Stock Earnings Play: Analyst
Options Trading School:
Pete Najarian is a professional investor, CNBC contributor, regular co-host of CNBC’s “Fast Money” and co-founder of OptionMonster.com. Najarian has no positions in CNO.