JCG – J. Crew Group, Inc. – Shares of the retailer of high quality apparel and accessories for men, women and children are down more than 4.10% to $42.85 after receiving a downgrade to ‘market perform’ from ‘outperform’ this morning at BMO Capital Markets. Despite the downgrade and the decline in the price of the underlying stock it looks like some contrarian options players are initiating put credit spreads to take advantage of richer put premium. Investors expecting J. Crew’s shares to trade above $40.00 through June expiration sold approximately 5,000 puts at the June $40 strike for an average premium of $1.42 each, and purchased about the same number of puts at the lower June $37.5 strike for an average premium of $0.95 apiece. Put players receive an average net credit of $0.47 per contract, and keep the full amount as long as shares exceed $40.00 at expiration. Traders employing the credit spread strategy run the risk of having shares of the underlying stock put to them at an average price of $39.53 each should the June $40 strike puts land in-the-money. Investors may suffer maximum potential losses of $2.03 per contract if JCG’s shares decline another 12.5% to breach the lower strike price of $37.50 by expiration day.
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Andrew Wilkinson is the senior market analyst at Interactive Brokers Group, where he provides daily commentary and analysis on U.S. equity options trading throughout the trading day. Andrew provides webinars designed to explain option-related trading scenarios covering futures, fixed income, forex and equities.
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