SKS – Saks, Inc. – Some investors made bullish moves on Saks, Inc. today with shares of the underlying stock up as much as 5.2% in the first half of the trading session to an intraday high of $8.50. The luxury retailer’s share price rose on optimism consumer spending continues to improve, although shares are up a lesser 3.10% to $8.33 as of 12:15 pm (ET). Options investors expecting shares to continue to improve purchased 3,000 calls at the July $10 strike for an average premium of $0.15 per contract. Call buyers at this strike price are prepared to make money as long as Saks’ shares surge 21.85% over the current price of $8.33 to surpass the average breakeven price of $10.15 by July expiration. The bullish bets in the July contract contrast with activity observed in the January 2011 contract where it looks like one investor expects the stock to cool and settle at $7.50 apiece by expiration. It appears the trade sold a straddle, shedding 3,600 calls at the January 2011 $7.5 strike for a premium of $1.95 each in combination with the sale of 3,600 puts at the same strike price for a premium of $1.05 apiece. Gross premium pocketed by the straddle seller amounts to $3.00 per contract. The investor keeps the full premium received only if shares of the underlying stock decline 10% to settle at $7.50 at expiration. The short position taken in both call and put options expose the responsible party to losses in the event that Saks’ shares rally above the upper breakeven price of $10.50, or if shares slip beneath the lower breakeven point at $4.50, ahead of 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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