Bearish Player Enacts Three-Legged Options Combo on Owens Corning (OC)

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.

About Andrew Wilkinson 1023 Articles

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.

Interactive Brokers: Interactive Brokers offers direct market access to around 80 electronic global markets from a single account. Successful traders and investors understand that superior technology and lower trading costs can result in greater returns. For 32 years we have been building direct access trading technology that delivers real advantages to professionals worldwide. With consolidated equity capital of US $4.4 billion, IB and its affiliates exceed 1,000,000 trades per day. In addition, our prudent and conservative risk policies make Interactive Brokers a safe haven for your money. Discover some of the reasons why IB, the largest independent US broker/dealer, is the professional traders' and investors' choice.

Visit: Interactive Brokers

Be the first to comment

Leave a Reply

Your email address will not be published.


*