VIA B – Viacom, Inc. – A short straddle on global entertainment giant, Viacom, suggests one options player sees the price of the underlying stock settling at $35.00 by expiration in December. Viacom’s shares rallied as much as 2.90% during the session to touch an intraday high of $35.78. The straddle-strategist sold 4,500 now in-the-money calls at the December $35 strike at a premium of $2.25 each, and sold 4,500 puts at the same strike at a premium of $2.025 a-pop. Gross premium pocketed on the trade amounts to $4.275 per contract for a total of $1,923,750.00. The investor keeps the full premium received on the transaction if Viacom’s shares settle at $35.00 at expiration. Short positions assumed in both call and put options leave the investor vulnerable to losses if the price of the underlying stock shifts drastically in either direction away from the strike price selected. Premium received on the straddle acts as a buffer against limited fluctuation in the firm’s share price, but losses start to amass for the investor if the price of the underlying rallies above the upper breakeven price of $39.275, or if the stock trades below the lower breakeven point at $30.725, ahead of December 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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