CY – Cypress Semiconductor Corp. – Cypress Semiconductor popped up on our ‘most active by options volume’ market scanner today after one big investor initiated a large covered put transaction involving 45,000 puts options and 1,360,000 shares of stock. CY’s shares were down slightly earlier in the trading session, but have since rallied 0.30% to stand at $10.63 as of 1:12 pm ET. It looks like the strategist responsible for this trade sold 45,000 September $10 strike put options with a .31 delta for an average premium of $0.325 each in combination with the sale of 1,360,000 shares for $10.50 apiece. The trader keeps the premium received on the sale of the puts and hopes to have shares put back to him in the event that shares in the semiconductor company are trading below the $10.00 strike price at expiration. However, the short stock position exposes the investor to potentially unlimited losses if shares rally sharply. While the premium received on the sale of the puts acts as a limited buffer against a rising share price, losses do start to build if shares rally above the average breakeven share price of $10.825. Alternatively, the investor could have the shares returned to him at $10.00 each if the put options land in-the-money at expiration. This scenario could yield approximate gains of 8.25% because of the beneficial change in share price from the $10.50 value at which he shorted the stock to $10.00, plus the premium received for selling the put options.
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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