ETH – Ethan Allen Interiors, Inc. – Shares of the manufacturer and retailer of home furnishings and accessories are trading just under 8.5% higher on the day to arrive at $14.86 as of 12:45 pm (ET). One long-term bullish investor targeted the November contract call options in order to position for continued appreciation in the price of the underlying stock. The options strategist initiated a plain-vanilla call spread, buying 1,000 deep in-the-money calls at the November $12.5 strike for a premium of $3.40 apiece, and selling the same number of calls at the higher November $17.5 strike for a premium of $0.80 each. The net cost of the transaction amounts to $2.60 per contract. Thus, the optimistic individual stands ready to profit should Ethan Allen’s shares increase another 1.6% to surpass the effective breakeven point on the spread at $15.10 by November expiration day. The investor walks away with maximum potential profits of $2.40 per contract if the furniture maker’s shares rally 17.75% over the current price of $14.86 to exceed $17.50 by expiration. Options implied volatility on Ethan Allen plunged 11.7% to 58.61% by 12:50 pm (ET).
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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