Why investor is selling calls in Hologic

optionMONSTER

Hologic has been pulling back after a strong run, and one investor apparently believes that shares will be trapped below current levels in the next four months.

optionMONSTER's tracking systems show that a block of 2,500 June 22 calls was sold for $1.50 yesterday in volume that dwarfed the previous open interest of 91 contracts, clearly indicating that this is a new position. A little more than a minute later, 250,000 HOLX shares were bought in a single print for $22.30.

The combination of stock and options creates a covered call strategy, which is bullish up to the strike price. Investors often sell calls in this way to generate income while holding their long positions, especially when they believe that share gains will be limited in the foreseeable future. (See our Education section)

If HOLX is below the $22 strike price at expiration in mid-June, the trader will keep the $1.50 credit as profit. But if the stock is above that level, he or she will be obligated to sell the shares.

HOLX fell 2.51 percent yesterday to close at $22.18. The medical-imaging company gapped up from below $21 and saw bullish option activity after releasing test results on its mammogram technology in early January, but shares hit resistance near the $24 level later that month and have been falling since.

The covered call trade made up almost all of yesterday's option volume in the name, which was 6 times more than its daily average in the last month. Only 149 puts changed hands in the session.

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