Increased Demand for Near-Term Call Options on Red Hat

RHT – Red Hat, Inc. – Renewed takeover speculation inspired increased investor demand for near-term call options on the software company and fueled a 15.9% increase in the stock’s overall reading of options implied volatility to an intraday high of 38.40% in morning trading. Red Hat’s shares are currently up 0.50% at $32.70 just before 2:00 pm ET, but earlier its shares jumped 2.95% to an intraday peak of $33.50. Investors hoping RHT’s shares will continue to increase ahead of September expiration picked up approximately 1,200 calls at the September $35 strike for an average premium of $0.59 per contract. Call buyers at this strike stand ready to profit should Red Hat’s shares surge 8.8% over the current price of $32.70 to first exceed the current 52-week high of $33.99, and ultimately surpass the average breakeven point to the upside at $35.59, by expiration day next month. Bulls also purchased roughly 1,000 call options at the higher September $36 strike for an average premium of $0.33 a-pop. Investors long the calls make money if RHT’s shares jump 11.1% in the next several weeks to trade above the effective breakeven price of $36.33 by September expiration. Red Hat’s overall reading of options implied volatility has tapered off slightly, but still stands 11.5% higher on the day at 36.84%, as of 2:05 pm ET.

About Andrew Wilkinson 1023 Articles

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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