Rocket Companies (RKT) showed unusual trading activity today in long-dated call options. This was likely initiated by covered call sellers, given that the strike price is 50% higher than today's trading price and the expiry period is over two months away (i.e., 79 days to expiry DTE).
They are likely taking advantage of the recent uptick in RKT stock after its March 31 acquisition announcement of Mr. Cooper Group in an all-stock deal.
The massive amount of call option trading activity can be seen in today's Barchart Unusual Stock Options Activity Report.
The table above shows that more than 12,400 call options traded in the June 20 expiry call option contract at the $21.20 exercise price. This activity is 111x the prior number of contracts outstanding, likely indicating institutional trading activity.
Note that the premium at the midprice is only 30 cents. That means that the investors who already own RKT shares could have sold covered calls and made a yield of 2.1% or so at the midpoint (i.e., $30/$1,412 per contract sold short).
That is a pretty good yield for a two-month investment, especially if the investor already owns the underlying shares, allowing them to do the covered call. In other words, the investors who entered an order to “Sell to Open” these call option contracts likely don't expect RKT to rise 50% over two months. They are happy to collect this 2% yield.
Moreover, even if the stock moves up 50%, they get to collect that capital gain if the stock price rises over $21.20.
This looks like a good way to take advantage of investor enthusiasm over the recent acquisition announcement.
Investors who decide to copy this trade should be careful to be aware of the risks of covered call selling. The Barchart Options Learning Center and Options Trading Risk tabs are worth studying beforehand.
