BPOP – Popular, Inc. – The Puerto Rico-based banking services company’s shares commenced the trading session in the red, but quickly rebounded up 1.40% to stand at $2.94 as of 10:45 am (ET). Perhaps the initial decline in the price of the underlying shares inspired the bearish options activity observed in the October contract. It looks like one pessimistic trader sold 5,000 calls outright at the October $3.0 strike to take in a premium of $0.45 per contract. The investor keeps the premium pocketed on the transaction as long as Popular’s shares do not exceed $3.00 by expiration day. If the responsible party is not currently holding a large underlying share position then the short stance in calls is a risky proposition should BPOP’s shares rally ahead of expiration. The investor faces potentially unlimited losses to the upside if Popular’s shares increase 17.35% over the current price to exceed the breakeven point at $3.45. Alternatively, the trader may be selling covered calls. In this case, the investor is apparently happy to have 500,000 shares of the underlying stock called from him at $3.00 if the contracts land in-the-money at expiration.
Affiliation: Interactive Brokers
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.
Interactive Brokers: Interactive Brokers offers direct market access to around 80 electronic global markets from a single account. Successful traders and investors understand that superior technology and lower trading costs can result in greater returns. For 32 years we have been building direct access trading technology that delivers real advantages to professionals worldwide. With consolidated equity capital of US $4.4 billion, IB and its affiliates exceed 1,000,000 trades per day. In addition, our prudent and conservative risk policies make Interactive Brokers a safe haven for your money. Discover some of the reasons why IB, the largest independent US broker/dealer, is the professional traders' and investors' choice.
Visit: Interactive Brokers