BID – Sotheby’s, Inc. – Shares of the auctioneer fine art, antiques and other collectibles rallied as much as 7.65% this afternoon to touch an intraday high of $35.86. One options investor bought call options back in August and was well positioned to book profits on today’s rally. It looks like the trader originally purchased some 1,000 calls at the October $35 strike at an average premium of $0.90 each back on August 11, 2010, when BID’s shares were trading at a volume-weighted average price of $29.41. Shares have since increased significantly, boosting premium on the October $35 strike calls. Thus, the bullish player was able to sell all 1,000 lots at that strike for a premium of $1.95 each today. Net profits on the transaction amount to $1.05 per contract. Next, the trader extended bullish sentiment on the auctioneer house by purchasing 1,000 fresh calls at the higher October $40 strike for premium of $0.35 apiece. Profits start to accumulate on the new position if BID’s shares jump 12.5% over today’s high of $35.86 to exceed the effective breakeven point to the upside at $40.35 by October expiration. The rise in demand for options on the stock helped lift BID’s overall reading of options implied volatility 5.9% to 53.02% by 3:05 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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