SolarWinds calls sold before earnings

Shares of information technology company SolarWinds are at all-time highs, but option traders are calling a top before its earnings report tomorrow morning.

SWI is off 3.09 percent to $33.59, down sharply from its session high of $36.99 and at its lows of the day. The stock is up from support at $20 in the last four months.

The action in the February 35 calls dominates today's volume in SolarWinds and eclipses its daily average of 675, optionMONSTER's systems show. More than 24,000 of those calls were sold against open interest of 7,899, with the largest block of 19,150 going for $1.25, which was less than the listed bid price at the time.

This call selling is not tied to any trading in the underlying shares that we can see. But given the action in the stock this morning,  it is very likely that the options were sold against an existing long stock position as a covered call . That would take a maximum profit if SWI is at or above $35 at expiration, so the trade is that the implied volatility is overinflated going into the earnings release. (See our Education section)

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