Options: Vornado Call Spread

The presence of a call-seller does not mean that investors should run out and sell Vornado shares.
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By Jud Pyle, CFA, chief investment strategist for the Options News Network.

Vornado Realty Trust

(VNO) - Get Report

March 55 calls have traded more than 12,000 times vs. open interest of 2,724, according to the


report at


. These calls are only part of the story though. They are part of a spread with the Feb 55 calls, which have also traded more than 12,000 times.

The motivation for this volume was a customer buying to close the Feb 55 calls for about 10 cents, to sell the March 55 calls at $1.20 to open. Note how the open interest in the Feb calls is 14,460. This investor sold these Feb calls originally for $3.20 back on Jan. 21, when the stock was trading around $53.46.

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This type of a call spread is a classic example of how a covered call-seller would manage a position. It is quite possible that the investor who did this trade is long 100 shares of stock for every one call contract short (remember calls have a multiplier of 100). So back in January, the investor sold the Feb 55 calls for $3.20. Since the stock is lower, the calls dropped all the way to 10 cents. Now the investor still wants to be short the 55 strike, so he or she sells those out.

The presence of this call-seller does not mean that investors should run out and sell shares of VNO. In fact, a buy-write is actually a bullish position because the investor needs the stock to not drop too much in order to profit.

Jud Pyle is the chief investment strategist for Options News Network (www.ONN.tv) and the portfolio manager of TheStreet.com Options Alerts. Click here for a free trial for Options Alerts. Mr. Pyle writes regularly about options investing for TheStreet.com.

Jud Pyle, CFA, is the chief investment strategist for Options News Network. Pyle started his career in finance in 1994 as a derivative analyst with SBC Warburg. After four years with Warburg, Pyle joined PEAK6 Investments, L.P., in 1998 as an equity options trader and as chief risk officer. A native of Minneapolis, Pyle received his bachelor's degree in economics and history from Colgate University in 1994. As a trader, Pyle traded on average over 5,000 contracts per day, and over 1.2 million contracts per year. He also built the stock group for all PEAK6 Investments, L.P. hedging, which currently trades on average over 5 million shares per day, and over 1 billion shares per year. Further, from 2004-06, he managed the trading and risk management for PEAK6 Investments L.P.'s lead market-maker operation on the former PCX exchange, which traded more than 10,000 contracts per day. Pyle is the "Mad About Options" resident expert. He is also a regular contributor to "Options Physics."