NOK – Nokia Corp. – Shares of the world’s biggest cell phone manufacturer are down 1.70% to arrive at $9.94 in the final hour of the trading week. An options investor expecting shares to stagnate over the next 4.5 months sold a strangle on the stock in the January 2011 contract. Earlier this week Nokia was cut to ‘sell’ from ‘hold’ at Citigroup on concerns the mobile maker will continue to lose market share. The strangle-strategist sold 5,000 calls at the January 2011 $11 strike for premium of $0.51 each, and shed the same number of puts at the lower January 2011 $9.0 strike at a premium of $0.46 apiece. Gross premium enjoyed on the transaction amounts to $0.97 per contract, which the investor keeps in full if Nokia’s shares trade without the confines of the strike prices described through expiration day. Short positions in both call and put options expose the trader to losses should shares rally above the upper breakeven price of $11.97, or if shares slip beneath the lower breakeven point at $8.03, ahead of expiration in January.
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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