OC – Owens Corning – Shares of the global producer of glass fiber reinforcements and other materials slipped 2.40% lower to $30.67 this morning, inspiring one options strategist to initiate a three-legged bearish combination play. The investor sold call out-of-the-money call options in order to finance the purchase of a debit put spread in the August contract to prepare for continued erosion in the price of the underlying shares through expiration. The pessimistic player purchased 3,000 puts at the August $30 strike for a premium of $2.00 each, sold 3,000 puts at the lower August $25 strike for a premium of $0.55 apiece, and sold 3,000 calls at the August $32.5 strike for a premium of $1.60 a-pop. The investor responsible for the transaction pockets a net credit of $0.15 per contract, and keeps the full credit received as long as Owens Corning’s shares fail to rally above $32.50 through expiration day in August. Additional profits accumulate for the trader if OC shares decline another 2.2% to breach the effective breakeven price of $30.00. The investor walks away with maximum available profits, including the credit received today, of $5.15 per contract if the price of the underlying stock plummets 18.5% from the current price of $30.67 and trades below $25.00 by August expiration.
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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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