IGT – International Game Technology – Long-term bullish trading activity took place on the manufacturer of electronic gaming equipment and systems today despite the 0.60% decline in the price of the underlying shares to $18.56 as of 12:45 pm (ET). One optimistic options strategist enacted a three-legged combination play involving both calls and puts to position for a sharp rebound in IGT’s shares by January 2011 expiration. The investor purchased 2,000 calls at the January 2011 $20 strike for a premium of $1.80 apiece, and sold the same number of calls at the higher January 2011 $25 strike for a premium of $0.45 each. Additional financing for the bullish strategy was provided by the sale of 2,000 puts at the January 2011 $15 strike for $1.20 per contract. The net cost of the transaction is reduced to just $0.15 per contract. Thus, the options combo-player is positioned to make money as long as IGT’s shares rally 8.6% to exceed the effective breakeven price of $20.15 by expiration in January. Maximum potential profits of $4.85 per contract pad the investor’s wallet if International Game Technology’s shares surge 34.7% over the current price of $18.56 to surpass $25.00 by January 2011 expiration day.
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.
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