ETFC – E*Trade Financial Corp. – A massive short strangle initiated on the provider of online brokerage and other financial services this afternoon suggests one big options player expects shares of the underlying stock to trade within a specified range through October expiration. E*Trade’s shares are currently up 5.63% at $1.50 as of 1:50 pm (ET). The enormous transaction with total volume of 250,000 option contracts represents a staggering 28.46% of total existing open interest on the stock of 878,206 contracts. If the investor maintains the position overnight, ETFC’s overall reading of open interest should exceed 1.128 million contracts tomorrow. An AMEX floor broker crossed the trade inspired by a large institutional trader who sold the strangle. The investor sold 125,000 calls at the October $2.0 strike for a premium of $0.09 each, and sold 125,000 puts at the lower October $1.5 strike for a premium of $0.25 apiece. Gross premium pocketed on the transaction amounts to $0.34 per contract for a total of $4.250 million. The responsible party keeps the full amount of profits as long as ETFC shares trade between $1.50 and $2.00 through October expiration. The parameters of the strangle dictate unlimited loss exposure to the upside should shares surge 56% to exceed the upper breakeven price of $2.34. Losses accrue to the downside if shares fall 22.66% to breach the lower breakeven point of $1.16.
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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