Option Activity Alert: Delta Air Lines, RadioShack, Motorola

DAL – Delta Air Lines, Inc. – The U.S. carrier’s shares are adding to yesterday’s post-earning rally, and are currently up 3.10% to stand at $13.37 as of 11:50 a.m. in New York. It looks like one bullish investor expecting Delta’s shares to at least hold on to the majority of recently realized gains initiated a three-legged credit put spread in the January 2011 contract. The trader sold 8,000 puts at the January 2011 $12.5 strike for premium of $0.93 each, picked up 4,000 puts at the lower January 2011 $10 strike for $0.25 in premium apiece, and purchased another 4,000 puts at the January 2011 $9.0 strike at a premium of $0.14 a-pop. The investor pockets a net credit of $0.54 per contract on the trade and keeps the full amount of premium received as long as Delta’s shares exceed $12.50 through January expiration. The investor responsible for the credit spread could wind up having shares of the underlying stock put to him at an effective price of $11.96 apiece if the January 2011 $12.5 strike puts land in-the-money by expiration.

RSH – RadioShack Corp. – The retailer of consumer electronics goods popped up on our scanners this morning after investors initiated bullish plays in the November contract. RadioShack’s shares are up 2.50% at $22.89 as of midday. Options traders may be positioning for shares to climb higher following the release of the firm’s third-quarter earnings report before the market opens on October 25, 2010. Investors exchanged more than 2,610 calls at the November $26 strike versus previously existing open interest of just 1 contract at that strike. It looks like approximately 1,200 of those calls were purchased for an average premium of $0.26 apiece. Call buyers are poised to profit should RadioShack’s shares surge 14.7% over the current price of $22.89 to surpass the average breakeven point at $26.26 by November expiration. The November $25 strike calls were also popular with traders today as more than 1,500 lots changed hands at that strike versus existing open interest of 164 contracts.

MOT – Motorola, Inc. – A large buy-write or covered call strategy enacted on the wireless communications company in the January 2011 contract caught our eye this morning. Motorola’s shares are currently down 2.00% as of 12:40 p.m. to stand at $7.80. The mobile device maker reports results for the third quarter before the market opens next Thursday. It looks like the options trader responsible for the buy-write sold 21,000 in-the-money calls at the January 2011 $7.5 strike at a premium of $0.65 per contract, and purchased 2.1 million shares of MOT stock at a price of $7.81 each. The hefty premium received for writing the calls effectively reduces the purchase price of the underlying shares to $7.16 each. Thus, the investor is positioned to amass maximum potential gains of 4.75% on the “rise” in shares from $7.16 to $7.50 if the large underlying position is called from him at $7.50 a share by expiration day.

About Andrew Wilkinson 1023 Articles

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.

Interactive Brokers: Interactive Brokers offers direct market access to around 80 electronic global markets from a single account. Successful traders and investors understand that superior technology and lower trading costs can result in greater returns. For 32 years we have been building direct access trading technology that delivers real advantages to professionals worldwide. With consolidated equity capital of US $4.4 billion, IB and its affiliates exceed 1,000,000 trades per day. In addition, our prudent and conservative risk policies make Interactive Brokers a safe haven for your money. Discover some of the reasons why IB, the largest independent US broker/dealer, is the professional traders' and investors' choice.

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