ADBE – Adobe Systems, Inc. – A put credit spread on the maker of graphic design software suggests one option strategist expects the firm’s shares are unlikely to decline much further ahead of October expiration. Adobe’s shares fell as much as 22.2% to touch down at a new 52-week low of $25.81 on Wednesday morning after the firm forecast lower than expected fourth-quarter sales. Today, shares slipped 0.15% lower to trade at $26.63 as of 11:30 am ET. The bullish player sold 2,500 puts at the November $25 strike for a premium of $0.85 each, and purchased the same number of puts at the lower November $22.5 strike at a premium of $0.30 apiece. The investor pockets a net credit of $0.55 per contract on the transaction and keeps the full amount as long as Adobe’s shares exceed $25.00 through expiration day in November. But, if shares do slide lower, the trader will accumulate losses beneath the effective breakeven price of $24.45. Maximum potential losses of $1.95 per contract amass for the credit-spreader if Adobe’s shares fall 15.5% from the current price of $26.63 to trade below $22.50 by expiration.
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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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