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Why one trader is selling calls in USU

Chris McKhann (chris.mckhann@optionmonster.com)

Shares of global energy company USEC are pushing back toward recent lows, and one trader is positioning for limited upside as well.

USU is down fractionally, trading at $0.81. It has been trending lower from $1 in the last couple of weeks and is back to resistance levels from a month ago. Shares were trading near $2 in January and above $3 a year ago.

The big option trade of the day doesn't see the stock returning to those upside levels in the near future. Almost 7,000 USU options have already changed hands, dwarfing its daily average of just 176 contracts.

Virtually all of that volume is in the October 1 calls, which were sold 6,700 times for the bid price of $0.05. Open interest at the start of the session was 786 contracts, so this is a new position.

The calls were very likely traded against long shares, given the upside risk of naked call sales at these levels. The covered call position would take a maximum profit at or above $1 but would give up gains with the stock above that price. (See our Education section)

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