SAY – Satyam Computer Services Ltd. – A short straddle on global IT solutions provider, Satyam Computer Services Ltd., indicates one options strategist expects little movement in the price of the underlying stock through April 2011 expiration. Satyam’s shares rallied 0.75% to $5.27 just before 2:40 pm ET. It looks like the straddle-player sold 5,000 calls at the April 2011 $5.0 strike for premium of $0.85 each, and shed 5,000 puts at the same strike to pocket premium of $0.60 apiece. Gross premium enjoyed on the transaction amounts to $1.45 per contract. The investor keeps the full premium received on the sale if SAY’s shares settle at $5.00 at expiration. However, shifts in the share price in either direction away from $5.00 could result in losses to the trader. Losses start to accumulate if shares rally above the upper breakeven price of $6.45, or if shares breach the lower breakeven point at $3.55, ahead of expiration day in April.
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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