MW – The Men’s Wearhouse, Inc. – Shares of the retailer of men’s suits and tuxedos jumped 5.4% at the start of the trading session after the firm posted better-than-expected second-quarter earnings of $0.80 a share versus the consensus forecast of $0.77 a share. MW’s shares are currently up 4.75% to stand at $22.00 as of 12:12 pm ET. The retailer popped up on our ‘hot by options volume’ market scanner after one investor initiated what looks to be a short straddle in the October contract. Selling the straddle indicates the trader expects Men’s Wearhouse shares to settle at $22.00 at expiration. The transaction likely involved the sale of 2,500 calls at the October $22 strike for premium of $1.00 apiece and the sale of 2,500 puts at the same strike at a premium of $1.40 each. Gross premium pocketed by the straddle-seller amounts to $2.40 per contract. The trader keeps the full premium as long as shares are trading at $22.00 at expiration. Wayward shifts in the underlying share price will cut into the investor’s profits. The short stance taken in both call and put options exposes the investor to losses in the event that shares rally above the upper breakeven price of $24.40, or if shares trade below the lower breakeven point at $19.60, ahead of expiration day in October. The overall reading of options implied volatility on Men’s Wearhouse collapsed 22.9% lower to 43.85% as of 12:20 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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