Put Options in Demand as Great Atlantic & Pacific Tea Shares Collapse

GAP – The Great Atlantic & Pacific Tea Company – Shares of the operator of supermarkets located in the U.S. are hemorrhaging today after the firm reported an abysmal first-quarter adjusted loss of $4.60 per share, versus average analyst expectations of a loss of $0.70 per share, ahead of the opening bell this morning. GAP’s shares also nosedived on news its CEO, Ron Marshall, left the company. The A&P Fresh operator’s shares fell as much as 31.8% in the first half of the trading session, crashing straight through its now defunct 52-week low of $3.55, to touch down at an intraday and new 52-week low of $2.68. Bearish options strategists anticipating continued erosion in the price of GAP’s shares purchased approximately 2,450 puts at the January 2011 $2.5 strike for an average premium of $0.55 per contract. Put buyers make money if, by expiration day, shares of the underlying stock plummet 27.2% from today’s low of $2.68 to slip beneath the effective breakeven point to the downside at $1.95. The demand for put options on GAP today helped boost the overall reading of options implied volatility on the stock 9.3% to 88.50% as of 12:20 pm (ET).

About Andrew Wilkinson 1023 Articles

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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