CAL – Continental Airlines, Inc. – Bullish options strategists initiated a couple of put credit spreads on Continental Airlines today with shares of the U.S. air carrier flying 4.35% higher to $24.00 as of 12:30 pm (ET). Investors populating CAL options are forecasting clear skies for the firm through September expiration and expect the price of the underlying shares to remain at least above $20.00 for the next few months. One of the bullish spreads involved the sale of 5,000 puts at the August $20 strike for a premium of $0.56 apiece, marked against the purchase of the same number of puts at the lower August $18 strike for a premium of $0.32 each. The investor responsible for the transaction pockets a net credit of $0.24 per contract, and keeps the full amount received today as long as CAL’s shares exceed $20.00 through expiration day next month. The trader receives the $0.24 credit in exchange for bearing the risk that shares crash and burn ahead of expiration. Losses on the position start to accumulate if Continental Airlines’ shares plunge 17.66% from the current price of $24.00 to breach the effective breakeven point to the downside at $19.76. The investor is slammed with maximum potential losses of $1.76 per contract should shares plummet 25% to trade below $18.00 ahead of expiration in August. An identical 5,000-lot put credit spread was established in the September contract. This transaction yields a net credit of $0.35 per contract to the responsible party if shares remain above $20.00, and results in maximum potential losses of $1.65 per contract if CAL’s shares slip beneath $18.00 by expiration day in September.
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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