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Time is money in Nabors strategy

David Russell (david.russell@optionmonster.com)

One investor is turning time into money with Nabors Industries.

optionMONSTER's tracking programs detected the sale of 6,796 September 17 calls for $1.73. An equal number of March 16 calls was bought at the same time for $1.13, but volume was below open interest at that strike.

This indicates that the investor closed a short position and rolled it forward in time. He or she probably owns shares in the contract-drilling company and is using the options as part of a covered call strategy. (See our Education section)

It's interesting that the investor has chosen in-the-money strike prices because that significantly limits their profits and risks. The result is a position more akin to a fixed-income investment than a stock trade.

NBR rose 3.36 percent to $17.24 on Friday and is up 19 percent so far this year.

The option trade generated an immediate credit of $0.60, and the trader now has the right to sell the stock for $1 more. The investor must also remain in the position for an additional six months. That $1.60 translates into a yield of 9.3 percent--not bad for half a year in a climate when 10-year Treasuries pay less than 2 percent. The investment will also receive two dividend payments totaling $0.08.

Of course there is more risk because the trade will lose money if NBR drops below $17. But the investor may not consider that a big danger because the company trades for less than its book value and activity has been increasingly bullish in the energy sector.

Total option volume was 8 times greater than average in the session.

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