GNW – Genworth Financial, Inc. – A three-legged bullish options combination play initiated on the insurance company today suggests one strategist expects Genworth’s shares to rally significantly ahead of expiration day in December. GNW’s shares inched up during morning trading, but later slipped 0.30% lower to stand at $13.54 by 12:50 pm ET. The investor appears to have sold put options in order to offset the cost of buying a debit call spread. To establish the spread the trader sold 4,000 puts at the December $12 strike for an average premium of $1.04 each, purchased 4,000 calls at the December $15 strike for an average premium of $1.14 apiece, and sold 4,000 calls at the higher December $18 strike for an average premium of $0.38 a-pop. The investor receives a net credit of $0.28 per contract on the transaction, and keeps the full amount as long as Genworth’s shares exceed $12.00 through December expiration. The short stance in December $12 strike puts implies the trader is willing to have shares of the underlying stock put to him at an effective price of $11.72 each should the puts land in-the-money at expiration. The investor is prepared to make money over and above the $0.28 net credit should GNW’s shares surge 10.8% over the current price of $13.54 to surpass the effective breakeven point to the upside at $15.00 by expiration day in December. Maximum available profits of $3.28 per contract pad the investor’s wallet if the insurance company’s shares jump 32.9% to trade above $18.00 by December expiration. Genworth’s shares last exceeded $18.00 back on May 10, 2010.
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.
Interactive Brokers: Interactive Brokers offers direct market access to around 80 electronic global markets from a single account. Successful traders and investors understand that superior technology and lower trading costs can result in greater returns. For 32 years we have been building direct access trading technology that delivers real advantages to professionals worldwide. With consolidated equity capital of US $4.4 billion, IB and its affiliates exceed 1,000,000 trades per day. In addition, our prudent and conservative risk policies make Interactive Brokers a safe haven for your money. Discover some of the reasons why IB, the largest independent US broker/dealer, is the professional traders' and investors' choice.
Visit: Interactive Brokers