SKS – Saks Incorporated – The implementation of a short straddle on the high-end retailer indicates one options investor expects little to no movement in the price of the underlying shares through expiration in February 2011. Saks’ shares are currently flat on the day to stand at $7.64 just before 11:45 am (ET). The straddle-strategist sold 2,000 calls at the February 2011 $7.5 strike for a premium of $1.20 each, and sold 2,000 puts at the same strike for premium of $1.15 apiece. Gross premium pocketed by the trader amounts to $2.35 per contract. The investor keeps the full amount of premium if, by expiration, Saks’ share price settles at $7.50. Short positions in both call and put options expose the trader to losses should the retailer’s shares rally above the upper breakeven price of $9.85, or if shares slip beneath the lower breakeven point at $5.15, ahead of expiration day next year.
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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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