ISLN – Isilon Systems, Inc. – An investor expecting Isilon’s shares to shift significantly come November expiration purchased a call spread and initiated a long stance in protective put options on the stock this morning. Shares of the computer services company are currently down 2.8% at $25.40 as of 12:30 pm ET. Isilon’s shares have come roaring back to life this year, rallying up 328.7% since touching down at a 2010-low of $6.15 on January 29, to touch a 52-week high of $26.37 on October 8. The purchase of a call spread suggests the investor is looking for ISLN shares to hit new highs by November expiration, while the purchase of put options represents protective positioning in case the bullish prediction fails to pan out. Isilon reports third-quarter earnings before the market opens on October 21, 2010. The options strategist paid a net $1.95 per contract, buying 3,000 calls at the November $30 strike, selling 3,000 calls at the higher November $35 strike, and purchasing 3,000 puts at the November $22.5 strike. Profits start to accumulate for the trader if shares surge 25.8% over the current price of $25.40 to surpass the effective breakeven point on the call spread at $31.95 by expiration day. Maximum potential profits of $3.05 per contract are available to the trader if shares jump 37.8% to exceed $35.00 by November expiration. Finally, the puts are a profitable acquisition for the investor if Isilon’s shares plunge 19.1% lower to trade below the effective breakeven price of $20.55 by expiration day next month.
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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