JNY – Jones Apparel Group, Inc. – The purchase of a three-legged bullish options combination spread on the manufacturer and marketer of a wide range of well-known brands of women’s clothing, accessories and footwear, suggests one strategist expects the price of the underlying stock to rally. Jones Apparel Group is scheduled to report third-quarter earnings ahead of the opening bell on October 27, 2010. Shares of the firm that represents brands such as Barneys New York and Anne Klein are up 0.85% to stand at $19.16 just after 11:00 a.m. in New York. Jones Apparel Group popped up on our ‘hot by options volume’ market scanner in the first 30 minutes of the session after one trader sold 2,000 puts at the February 2011 $16 strike for a premium of $0.89 each, purchased 2,000 in-the-money calls at the higher February 2011 $19 strike at a premium of $2.29 apiece, and sold the same number of calls at the February 2011 $22.5 strike for premium of $0.85 a-pop. The net cost of the transaction amounts to $0.55 per contract and positions the investor to make money should JNY’s shares exceed the effective breakeven price of $19.55 by expiration day. Maximum potential profits of $2.95 per contract are available to the investor if the value of the underlying stock jumps 17.4% over the current price of $19.16 to trade above $22.50 by February expiration. A similar three-legged bullish transaction took place on JNY back on September 15, 2010. That trader sold the Feb. 2011 $15 puts instead of the $16 strike contracts in order to buy the same Feb. 2011 $19/$22.5 strike call spread, 2000 times, at a net cost of $0.35 per contract. Expiration for these options is a long way off, but the trades still position investors to benefit from upward movement in JNY shares if the earnings report next week beats expectations.
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.
Visit: Interactive Brokers