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Put selling in Royal Bank of Canada

Mike Yamamoto (mike.yamamoto@optionmonster.com)

Traders are betting that any downside in the Royal Bank of Canada will be limited for the next month.

More than 3,500 January 65 puts were sold for $1.15, according to optionMONSTER's tracking systems. The volume was well above the strike's previous open interest of 1,945 contracts, indicating new activity.

The traders are looking for the stock to hold above $65 through expiration mid-January, at which time the $1.15 credit would be kept as profit. But if RY falls below that strike price, the put sellers would be on the hook to buy shares at that level.

Traders sometimes sell puts in this way in hopes of picking up the stock at a discount . For example, in Ryland's case, the effective purchase price for the put sellers would be $63.85. (See our Education section)

RY rose 1.18 percent yesterday to close at $65.16, rising back above its 100-day moving average. The stock had pulled back since hitting an all-time high of $68.89 on Nov. 18 but gapped higher yesterday morning after report s that it might spin off portions of its proprietary-trading operations to comply with the so-called Volcker Rule in the United States. The company is scheduled to hold its annual shareholders meeting on Feb. 26.

The put selling pushed total option volume in the name past 4,100 contracts, about 9 times its daily average for the last month.

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