CECO – Career Education Corp. – Shares of the for-profit provider of education geared toward career-oriented disciplines rallied as much as 10.9% during the session to secure an intraday high of $23.00 on analyst reports stating the industry is likely to rebound as bearish investors close out short positions. Options traders employed a mix of bullish and bearish strategies on the stock ahead of the release of the Education Department’s timeline for regulations on for-profit education industry firms tomorrow. One cautious investor prepared for CECO’s shares to falter ahead of October expiration by purchasing a ratio put spread. The options trader picked up 500 puts at the October $22 strike at a premium of $1.15 each, and sold 1,000 puts at the lower October $19 strike at a premium of $0.20 apiece. The net cost of the transaction amounts to $0.75 per contract. The investor is poised to profits should Career Education’s shares fall 7.6% from today’s high of $23.00 to breach the effective breakeven price of $21.25 by expiration day next month. Maximum potential profits of $2.25 are available to the trader if CECO shares plummet 17.4% to settle at $19.00 at expiration. In contrast, bullish players looking for a near-term rally picked up roughly 3,200 calls at the October $23 strike for an average premium of $1.02 each. Investors make money if shares gain 4.4% to surpass the average breakeven point at $24.02 by October expiration. The most optimistic traders purchased approximately 1,000 calls at the October $25 strike for an average premium of $0.43 a-pop. Call buyers at this strike stand ready to profit should shares surge 10.55% and exceed the average breakeven price of $25.43. Options implied volatility on stock is up sharply ahead of the Education Dept. announcement, and currently stands 11.6% higher on the day at 61.28%, as of 3:40 pm ET.
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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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