Traders collar Commonwealth REIT

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A three-way trade is positioning for a possible drop in Commonwealth REIT.

optionMONSTER systems show that more than 14,000 CWH options change hands already this morning, compared to a daily average of 979 over the last month. The action is almost entirely in October options.

A trader sold 3,145 October 22.50 calls for $2.05 and, at the same time, bought 3,145 October 17.50 puts for the ask price of $0.30. Seconds later, he or she sold another 4,193 of those calls for $2.10 and bought 4,193 of the 20 puts for $0.75. The volume was above open interest in all three strikes, so these are new trades.

These are very likely collars designed to protect a long-stock position, especially given that the calls are in the money . The trader does not anticipate any gains in the shares through mid-October but would like to collect a protected premium while holding the stock. (See our Education section)

CWH is up fractionally at $23.52 this morning. The real-estate investment trust has traded between $20 and $24 since February but is back near 52-week highs.

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