AXP – American Express Company – The global payments company appeared on our ‘most active by options volume’ market scanner this afternoon after one options strategist initiated a bearish put butterfly spread in the July contract. AXP’s shares are up 1.65% to $42.73 as of 2:45 pm (ET). The investor responsible for enacting the butterfly spread is perhaps positioning for AXP shares to decline should items in the final version of the regulatory overhaul bill prove detrimental to the firm. The options player appears to have purchased 3,500 puts at the July $30 strike for a premium of $0.09 apiece [wing 1] and purchased another 3,500 puts at the higher July $40 strike for an average premium of $0.57 each [wing 2]. The body of the butterfly centered at the July $35 strike where 7,000 puts were sold at a premium of $0.16 a-pop. The net cost of the spread amounts to $0.34 per contract. The investor loses the full amount of premium paid per contract if American Express shares trade above $40.00 through July expiration. However, the parameters of the transaction indicate the trader accrues maximum potential profits of $4.66 per contract if the price of the underlying stock falls 18% to settle at $35.00 at expiration. AXP’s shares must decline at least 7.2% from the current price of $42.73 before the butterfly-spreader starts to make money beneath the upper breakeven price of $39.66.
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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