AMAT – Applied Materials, Inc. – Straddle selling strategists dominated options activity on the provider of Nanomanufacturing Technology solutions this afternoon indicating investors expect volatility in the price of Applied Materials’ shares to come dissipate. AMAT’s shares are currently up slightly by less than 0.10% to stand at $12.86 as of 1:00 pm (ET). Investors signaled they see shares of the underlying stock settling at $13.00 by July expiration by shedding nearly 20,000 calls at the July $14 strike for an average premium of $0.54 apiece in combination with the sale of roughly 20,000 puts at the same strike price for an average premium of $0.71 each. The short straddle strategy in this case yields gross premium of $1.25 per contract, which investors keep in full as long as Applied Materials’ shares trade at $13.00 at expiration. The premium received today offers limited protection to investors against potentially devastating losses inherent in any short straddle combination. Straddle-sellers lose the full premium pocketed on the trade and start to incur losses on the transaction if shares of the underlying stock rally above the upper breakeven price of $14.25, or if shares slip beneath the lower breakeven point at $11.75, by expiration day next month.
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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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