JNPR – Juniper Networks, Inc. – Shares of the provider of switches and routers slipped 2.50% to $28.13 this morning, inspiring one wary options investor to brace for continued share price erosion through October expiration. The bearish player looked to the October contract and purchased a plain-vanilla debit put spread, buying 5,950 puts at the October $28 strike for an average premium of $1.43 each, and selling the same number of puts at the lower October $25 strike for an average premium of $0.54 apiece. The net cost of the transaction amounts to $0.89 per contract, thus positioning the investor to make money should Juniper’s shares fall another 3.6% to breach the average breakeven price on the spread at $27.11 by expiration day. Maximum potential profits of $2.11 per contract are available to the put player if JNPR’s shares plunge 11.1% to trade below $25.00 by October expiration. Juniper Networks’ shares traded below $25.00 as recently as July 8, 2010. The price of the underlying shares rebounded sharply during the month of July, rallying 30.33% from a 52-week low of $22.25 on July 1 to an intraday high of $29.00 during the current session. Perhaps the put spreader populating the stock today expects JNPR’s shares to surrender a significant portion of the month’s rally ahead of expiration.
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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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