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Massive hedging activity in Exelon

David Russell (david.russell@optionmonster.com)

Exelon has bounced hard, and traders are protecting their profits.

optionMONSTER's Depth Charge monitoring program detected the purchase of about 20,000 May 31 puts for $0.50 to $0.60, dwarfing previous open interest of just 31 contracts. The April 32s were also bought for $0.50 more than 5,000 times.

Puts make money when a stock falls because they lock in the price where shares can be sold. Investors use them to hedge existing positions or to speculate on a drop. (See our Education section.)

EXC fell 1.49 percent to $32.44 yesterday, but is up 18 percent since the start of January. That rebound followed years of selling pressure in the electricity company, which operates nuclear power plants and runs local utilities.

Given its longer-term downtrend, some traders may expect a pullback following the recent rally. That would explain Wednesday's bearish trades.

Puts accounted for a 92 percent of the volume, according to Depth Charge. Total option activity was 13 times normal amounts.

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