PFE – Pfizer, Inc. – Long-term options activity on the pharmaceutical giant indicates some strategists expect shares in Pfizer to remain range-bound through June 2011 expiration. It looks like investors initiated both short strangles and straddles in the first half of the session to take in available premium. Shares are currently down 1.00% to stand at $17.01 as of 12:25 pm in New York trading. Strangle players appear to have sold 1,000 puts at the June 2011 $15 strike for an average premium of $0.72 each in combination with the sale of 1,000 calls at the June 2011 $20 strike at an average premium of $0.47 apiece. Gross premium enjoyed by strangle-sellers amounts to $1.19 per contract. Investors keep the full premium received on the sale as long as Pfizer’s shares trade within the boundaries of the strike prices described through expiration day. An options strategist expecting shares to trade within an even narrower range sold a 4,500 lots straddle at the June 2011 $17 strike for a gross premium of $2.71 per contract. The straddle-seller keeps the full amount of premium received on the transaction if Pfizer’s shares settle at $17.00 at expiration. Short positions taken in both call and put options at the June 2011 $17 strike expose the investor to losses in the event that PFE shares swing significantly in either direction away from the central strike price. Losses start to accumulate if the drug maker’s shares rally above the upper breakeven price of $19.71, or if shares slip beneath the lower breakeven point at $14.29 ahead of expiration day in June 2011. Both the short strangle and the short straddle strategies employed on Pfizer today indicate investors expect volatility in the price of the underlying shares to decline going forward.
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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