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Call seller bets on ceiling in bond fund

Chris McKhann (chris.mckhann@optionmonster.com)

The iShares High-Yield Corporate Bond Fund is near multi-year highs, but a large trader apparently believes that further upside will be limited.

optionMONSTER systems show that a trader sold 5,000 March 93 calls for the $1.20 yesterday. Open interest in the strike was 1,126 contracts at the beginning of the session, so this is a new position.

The call selling is a bet that the HYG will continue to run into resistance around that $93 level. The options could have been sold naked with an initial bearish bias or traded against long shares as a covered call . (See our Education section)

The HYG rose fractionally yesterday to close at $93.29. The exchange-traded fund bounced off support near $90 three weeks ago. Resistance around $94 has been in place since June 2008, with a four-year high coming in right around that level in mid-September.

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