RMD – ResMed Inc. – A thee-legged bearish options transaction pushed the manufacturer and distributor of medical equipment for treating, diagnosing and managing sleep-disordered breathing and other respiratory disorders onto our ‘hot by options volume’ market scanner this morning. The strategist responsible for enacting the pessimistic play essentially sold call options to finance the purchase of a debit put spread in order to prepare for shares of the underlying stock to decline ahead of August expiration day. RedMed’s shares are currently trading higher by 1.1% to stand at $65.65 as of 12:15 pm (ET). The bearish trader purchased 1,000 puts at the August $60 strike at a premium of $1.00 apiece, sold 1,000 puts at the lower August $55 strike for a premium of $0.25 each, and sold 1,000 calls at the August $70 strike at a premium of $100 a-pop. The investor pockets a net credit of $0.25 per contract on the transaction, and keeps the full amount as long as RedMed’s shares fail to rally above $70.00 ahead of expiration day next month. Additional profits accumulate if the medical equipment manufacturer’s shares fall 8.60% to trade below $60.00 by expiration. Maximum potential profits, including the credit received today, of $5.25 per contract are available to the options strategist should RedMed’s shares plummet 16.2% to trade at or below $55.00 by expiration day in August.
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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