Heavy Call Selling in AES

CHICAGO (TheStreet) -- Investors looking to buy call options in AES(AES Quote) have a plentiful supply thanks to at least one call seller boosting volume today.

Shortly after 11 a.m. EST, a block of 1.3 million AES shares traded. Around the same time, an investor sold, or "wrote," 12,900 May 15 calls for $1.40 per option. This combination trade is referred to as a "buy-write," as the investor most likely bought AES stock and financed that purchase by selling calls.

By afternoon trading, more than 13,000 of the May 15 calls hit the tape with the stock down eight cents to $13.95 per share. This hefty volume compares to current open interest of 932 contracts at this near-the-money strike.

The May 15 calls have declined three cents on the day, computing to an implied volatility of 46. Normal daily volume for AES options overall is around 2,500; the majority of the options volume we see today accumulated in the May 15 strike series, while few options have traded across the other strikes.

AES shares have rallied more than 100% since their March lows of around $4.90, and the shares have sold off slightly since the end of October.

Call selling activity such as this does not mean investors should run out and sell their AES shares. In this case, the investor actually wants the shares to hold steady or move higher in order to attain maximum profit.

Additionally, investors are looking for higher direction because they sold the calls for $1.40 but are long the shares for a price of $14, so the investor begins to lose money should the shares drop below $12.60. This buying and selling action is actually moderately bullish activity with these calls because they are paired with stock.