A-Power (APWR) Seeing Heavy Call Trading

Even in this slow trading day, the OptionsHouse Hotlist is picking up unusual heavy volume in A-Power Energy Generation Systems (APWR). The stock is higher by 12.5% and more than 16,000 contracts have traded. The calls are dominating the action here with almost 10,000 calls hitting the tape. Particularly active are the December 15 and 17.5 calls, with more than 2,000 of each changing hands.

These December options have traded predominately on the bid side, which likely indicates selling action here. The March 12.5 calls have also been active, with more than 1,300 contracts having trading mainly on the offer, implying a buyer. The investors may be closing down long options in December (where open interest is over 8,000 contracts) and buying in-the-money calls at the March 12.5 strike, effectively rolling out a stock-replacement strategy.

With this strategy, investors use call options to “replace” long stock for exposure to any share increase. The maximum loss for a long call is limited to only 100% of the premium paid, which is always lower than the share price. The reward to a long call is theoretically unlimited to the upside in the shares.