Options Brief: TRW Automotive (TRW)

TRW – TRW Automotive Holdings Corp. – The purchase of a plain-vanilla debit put spread on the diversified supplier of automotive systems, modules and components to global automotive equipment manufacturers indicates one options strategist is bracing for shares of the underlying stock to decline ahead of August expiration. TRW’s shares are currently down more than 4.3% to stand at $26.38 as of 11:07 am (ET). The bearish investor picked up 5,000 puts at the August $25 strike for a premium of $1.65 apiece, and sold the same number of puts at the lower August $20 strike for a premium of $0.40 each. Net premium paid to establish the spread amounts to $1.25 per contract. Thus, the trader responsible for the transaction is prepared to profit should TRW’s shares fall another 9.97% from the current price of $26.38 to breach the effective breakeven point to the downside at $23.75 by August expiration. The investor walks away with maximum potential profits of $3.75 per contract if the price of the underlying stock plummets 24.2% to trade below $20.00 by expiration day in August. The sharp increase in demand for put options on the stock lifted TRW’s overall reading of options implied volatility 8.1% to 69.26% as of 11:12 am (ET).