VECO – Veeco Instruments, Inc. – One options strategist initiated a ratio bull call spread on the electronic equipment manufacturer despite the 12.45% decline in the price of the underlying shares to an intraday low of $39.76. VECO’s shares plunged following reports The Commercial Times, a Taiwan-based newspaper, said flat-panel makers are placing fewer orders in the LED sector. One contrarian player seems to think the drop in shares is merely a temporary setback and thusly took advantage of reduced premium on out-of-the-money calls by purchasing a ratio spread. It looks like the investor picked up 6,500 call options at the September $41 strike for an average premium of $3.05 each, and sold 13,000 calls at the higher September $45 strike at an average premium of $1.36 apiece. Average net premium paid to purchase the spread amounts to approximately $0.33 per contract. Therefore, the investor stands ready to make money should Veeco’s shares reverse course and rebound 3.95% off today’s low of $39.76 to surpass the average breakeven price of $41.33 by expiration day next month. The trader walks away with maximum potential profits of $3.67 per contract as long as the price of the underlying stock jumps 13.2% to settle at $45.00 at expiration. Veeco’s overall reading of options implied volatility increased 12% to 61.12% by 1:05 pm ET.
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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