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Dividend bull looks for market melt-up

David Russell (david.russell@optionmonster.com)

One investor is playing it safe in the iShares Dow Jones Select Dividend exchange-traded fund.

optionMONSTER's Depth Charge monitoring program detected the purchase of more than 14,000 June 66 puts for $0.60 to $0.65. Volume was almost 300 times previous open interest at the strike, indicating that new positions were initiated.

Puts lock in the price where they can sell shares in DVY, so it provides insurance against a pullback . The fund pays a quarterly dividend of $0.56, effectively lowering the cost of the puts to $0.10 and establishing a $65.90 floor beneath the share price.

DVY rose 0.98 percent to close at $67 on Friday, so they have less than 2 percent of downside risk and unlimited gains to the upside. The fund holds major blue-chip companies such as Lorillard, Lockheed Martin, and Chevron, so it will likely track the broader market. That makes the position a low-risk bet that stocks will continue to run over the next five weeks. (See our Education section for more on how to manage risk and maximize profits with options.)

More than 14,500 contracts changed hands in DVY, compared with 547 in a typical session. Puts surpassed calls by a 259-to-1 ratio.

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