by David Russell
An investor implemented an unusual trade on lumber company Rayonier (RYN) Wednesday to eke out income at relatively low risk.
Our tracking systems detected the purchase of 936,000 RYN shares for $41.05. Ten minutes later, 9,360 January 40 calls were sold for $3.40 against open interest of 2,906 contracts.
The covered-call strategy was unusual because the investor sold in-the-money calls as opposed to out of the money calls. The higher premium reduced his or her purchase price in the equity to $37.65 per share, but also capped upside at the strike price if the stock remains above $40 by expiration. That would translate into a 6.2 percent gain.
RYN fell 0.53 percent to $40.91 on the session. The trade is low risk because the investor can only lose money if the shares fall below the $37.65 cost basis. Given the low risk and low return, the strategy may have been implemented with leverage to enhance returns.
The company last reported earnings on July 30 and hasn't yet announced when third-quarter results will be made public.
The transaction drove overall options volume in the name to 35 times greater than average.
(Chart courtesy of tradeMONSTER)