CX – Cemex SAB de CV – A large short strangle enacted on the cement maker today indicates one options player expects the price of the underlying stock to trade within a narrow range through expiration in January 2011. Cemex’s shares are currently up 0.10% to stand at $9.53 as of 12:20 pm ET. The firm already reported second-quarter earnings, which ended up being its third straight quarterly loss, back on July 27. It looks like the strangle-strategist sold 6,200 calls at the January 2011 $10 strike at a premium of $0.90 apiece in combination with the sale of 6,200 puts at the lower January 2011 $9.0 strike for a premium of $0.90 each. Strangles typically indicate the expectation of subsiding volatility in the price of shares as well as the belief the share price will trade within the range of the strike prices selected through expiration. In this transaction, the investor receives a gross premium of $1.80 per contract, or $1.116 million, and keeps the full amount if shares trade within $9.00 to $10.00 through expiration day in January 2011. The short stance assumed in both call and put options dictates breakeven prices – points at which losses start to accumulate – of $11.80 to the upside, and $7.20 to the downside. This particular strangle, which has a net delta of .13, was evidently tied to the purchase of 80,600 shares of the underlying at $9.50 a-pop.
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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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