ETN – Eaton Corp. – The power management company popped up on our ‘hot by options volume’ market scanner in morning trading after one pessimistic player purchased a debit put spread in the October contract. Eaton’s shares lost 1.2% to trade at $71.01 as of 12:35 pm ET. The investor responsible for the plain-vanilla put spread is perhaps bracing for continued erosion in the price of the underlying shares ahead of the firm’s scheduled presentation at the Morgan Stanley Global Industrials Conference on Wednesday. The investor picked up 1,800 puts at the October $70 strike at a premium of $2.80 each, and sold the same number of puts at the lower October $60 strike for premium of $0.60 apiece. The net cost of the purchasing the spread amounts to $2.20 per contract. The trader stands ready to amass profits should Eaton’s shares fall another 4.5% to breach the effective breakeven price of $67.80 by expiration day in October. The put player could walk away with maximum potential profits of $7.80 per contract if Eaton Corp. shares plunge 15.5% lower to trade under $60.00 by expiration. Options implied volatility on the stock inched up 5.7% to 31.48% by 12:40 pm ET.
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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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