U.S. Markets open in 4 hrs 17 mins

Why trader is selling calls in Enbridge

Mike Yamamoto (mike.yamamoto@optionmonster.com)

Enbridge has been trading sideways for most of the year, and one investor is apparently expecting limited gains in the oil and natural-gas transportion company.

optionMONSTER's scanners detected the sale of 2,000 July 45 calls in a single print for $0.40 on Friday, well above the open interest of 703 contracts and therefore a new position. Less than a minute later, 200,000 ENB shares were bought for $40.42.

The stock and options were traded at the same time in a covered call strategy, which is bullish up to the $45 strike price. If ENB is below that level at expiration in mid-July next year, the trader will keep the $0.40 credit as profit; if the stock is above that price, he or she will be obligated to sell the shares.

Traders often sell calls against stock in this way to generate income while holding their long positions, especially when they believe that share gains will be capped in the near term. (See our Education section)

Although ENB slipped 0.12 percent on Friday to close at $40.29, it has been climbing for the last two weeks and rising above several key moving averages. But a broader look at the stock shows that it has been range-bound since March, mostly between $38 and $42, which may be why the trader sees limited upside and is selling the calls.

Friday's call sale was responsible for all but 4 options in ENB's total volume in the session, which was nearly 12 times its daily average. No puts were traded that day.

More From optionMONSTER