Option Activity Alert: China Petroleum, Market Vectors Gold Miners Index

SNP – China Petroleum & Chemical Corp. – Shares of the largest Chinese oil and petrochemical company are up 1.20% at $89.34 in morning trading perhaps on news the company, known by the abbreviation Sinopec, purchased a 40% stake in the Brazilian unit of Spanish oil company Repsol for $7.1 billion. It looks like one investor expecting Sinopec’s shares to climb higher by January 2011 expiration is positioning for the rally by initiating a bullish risk reversal. The trader sold 2,250 puts at the January 2011 $80 strike at an average premium of $1.7750 apiece in order to buy the same number of calls at the higher January 2011 $100 strike for a premium of $1.45 each. The investor pockets a net credit of $0.325 per contract and keeps the full amount as long as SNP’s shares exceed $80.00 through expiration day next year. Additional profits start to amass should the price of the underlying shares surge 11.9% over the current price of $89.34 to trade above $100.00 ahead of expiration day in January.

GDX – Market Vectors Gold Miners Index ETF – A short strangle initiated on the gold miners fund this morning indicates one options strategist expects the price of the underlying shares to trade within a specified range through expiration in November. Shares of the GDX, an exchange-traded fund designed to replicate the performance of the NYSE Arca Gold Miners Index, are up 1.35% at $56.68 as of 11:20 am ET. The strangle player sold 4,000 puts at the November $52 strike for premium of $0.88 apiece and shed 4,000 call at the higher November $62 strike at a premium of $0.67 each. Gross premium pocketed on the transaction amounts to $1.55 per contract. The investor keeps the full amount of premium received on the strangle if GDX shares trade above $52.00 but below $62.00 through November expiration day. Short positions in both call and put options expose the investor to losses should shares of the fund rally above the upper breakeven price of $63.55, or if shares trade below the lower breakeven point at $50.45, ahead of expiration.

About Andrew Wilkinson 1023 Articles

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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