CAL – Continental Airlines, Inc. – Shares in Continental Airlines are down 2.9% at $20.37 this morning, but one contrarian options strategist appears to be betting that the stock is unlikely to fall much further in the next couple of months. The investor initiated a bullish credit put spread, selling 5,000 puts at the October $20 strike for premium of $1.53 each, and buying the same number of puts at the lower October $18 strike at a premium of $0.89 apiece. The trader pockets a net credit of $0.64 per contract on the transaction and keeps the full amount as long as CAL’s shares exceed $20.00 through expiration day in October. Continental Airlines’ shares, at the current price of $20.37, are down 21.6% since July 27, 2010, when the stock was trading at approximately $25.99. The investor responsible for the credit spread does not expect shares will fall much lower, but is happy to have CAL shares put to him at an effective price of $19.36 each in the event that CAL shares continue to decline, and the puts land in-the-money at expiration. The trader is exposed to maximum potential losses of $1.36 per contract should the price of the underlying stock plunge 11.6% from the current price to trade beneath $18.00 by expiration day.
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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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