S – Sprint Nextel Corp. – The implementation of a short strangle on Sprint in the first half of the trading session indicates one options strategist expects the price of the underlying stock to trade within a narrow range through November expiration. The wireless telecommunications company’s shares are currently up 0.92% to stand at $4.38 as of 12:25 pm ET. The strangle-player sold 10,000 puts at the November $4.0 strike for premium of $0.22 each and shed 10,000 calls at the higher November $5.0 strike at a premium of $0.18 apiece. Gross premium pocketed on the transaction amounts to $0.40 per contract. The investor responsible for the trade keeps the full premium received as long as Sprint’s shares trade above $4.00 and below $5.00 through expiration day in a couple of months time. But, the short positions in both call and put options expose him to losses should shares shift significantly ahead of November expiration. Losses start to amass if Sprint’s shares rally above the upper breakeven point at $5.40, or if shares slip beneath the lower breakeven price of $3.60, 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.
Interactive Brokers: Interactive Brokers offers direct market access to around 80 electronic global markets from a single account. Successful traders and investors understand that superior technology and lower trading costs can result in greater returns. For 32 years we have been building direct access trading technology that delivers real advantages to professionals worldwide. With consolidated equity capital of US $4.4 billion, IB and its affiliates exceed 1,000,000 trades per day. In addition, our prudent and conservative risk policies make Interactive Brokers a safe haven for your money. Discover some of the reasons why IB, the largest independent US broker/dealer, is the professional traders' and investors' choice.
Visit: Interactive Brokers