DELL – Dell, Inc. – Bearish investors are sticking it to the personal computer manufacturer today after tech giant Hewlett-Packard made a far more aggressive $24.00 a share bid for 3Par, Inc., which overshadows the $18.00 a share bid for the data storage provider that Dell announced last week. DELL shares fell as much as 1.7% today to touch down at an intraday low of $11.86. Pessimistic players threw in the towel on Dell, adding to previously established short call open interest, by selling some 3,700 calls at the September $12 strike at an average premium of $0.38 per contract. Call sellers keep the premium received on the transaction as long as the September $12 strike calls fail to land in-the-money at expiration. Investors short the calls technically faced unlimited losses, unless they are long the stock, if Dell’s shares rally above $12.38 ahead of expiration day next month. Other bearish traders shed 1,100 calls at the higher September $15 strike to pocket a penny per contract. Pessimism spread to the November contract where investors sold 1,600 in-the-money calls at the November $11 strike for an average premium of $1.35 each, shed 1,600 lots at the November $12 strike for $0.69 premium apiece, and sold another 1,500 calls at the November $13 strike for an average premium of $0.28 a-pop. In-the-money call sellers are perhaps expecting DELL’s shares to fall another 7.25% by November expiration. If this occurs, traders short the November $11 strike calls walk away with the full $1.35 premium per contract pocketed on the sale as long as Dell’s shares fail to rebound above $11.00 by expiration day.
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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