Checking out Vornado Realty Trust (NYSE: VNO, Stock Forum), March 55 calls traded more than 12,000 times yesterday versus open interest of 2,724, according to the Sidewinder report at www.ONN.tv. These calls were only part of the story, though. These calls were 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 January 21 when the stock was trading around $53.46.
This type of a call spread is a classic example of how a covered call seller would manage his or her 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, they 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 they sell those out.
The presence of this call seller does not mean investors should run out and sell their 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.