APC – Anadarko Petroleum Corporation – The implementation of a short strangle on Anadarko Petroleum Corp. today suggests one options investor is expecting shares of the underlying stock to remain range-bound through November expiration. Shares of the independent oil and gas exploration and production company fell as much as 5.00% to touch down at an intraday low of $34.84 this morning, but clawed their way back to stand just 0.70% lower on the day at $36.42 just before 11:30 am (ET). The strangle-strategist sold 5,000 puts at the November $27.5 strike for a premium of $3.41 apiece in combination with the sale of 5,000 calls at the higher November $40 strike for a premium of $5.01 each. Gross premium pocketed by the responsible party amounts to $8.42 per contract. The investor keeps the full premium received on the transaction as long as Anadarko’s shares trade within the boundaries of the strike prices described through expiration day in November. The short stance taken in both call and put options expose the investor to losses should shares of the oil company swing dramatically in either direction. Losses start to accumulate if APC’s shares rally above the upper breakeven price of $48.42, or if the price of the underlying slips beneath the lower breakeven point at $19.08, ahead of November expiration.
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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