Options Activity Alert: EEM, ETFC, S

EEM – iShares MSCI Emerging Markets Index ETF – Shares in the EEM increased roughly 7% in the past two weeks and a large call butterfly spread initiated this morning suggests one options market participant is positioning for the price of the underlying to tack on another 7% in the next six weeks. The one-by-two-by-one limited risk strategy could pay off handsomely at September expiration if shares in the EEM rally to their highest since early-April. Shares in the ETF are currently up 0.50% on the day at $40.55 as of 1:25 p.m. in New York. The butterfly spread was constructed through the purchase of 40,000 calls at each of the Sept. $42 and $45 strikes, marked against the sale of 80,000 calls at the Sept. $43.5 strike, all for a net premium outlay of $0.22 apiece. The trade starts making money in the event EEM shares rally 4% to surpass the breakeven point at $42.22, with maximum possible profits of $1.28 per contract available given a 7.3% move higher in the share price to $43.50. The risk-reward ratio works in the trader’s favor; losses are limited to $0.22 per contract but maximum potential profits are nearly six times that amount should the ETF’s shares settle at the central strike price by expiration next month.

ETFC – E*Trade Financial Corp. – News that online broker, E*Trade Financial Corp., gave CEO Steven J. Freiberg the pink slip was well-received by investors today, with the shares trading up as much as 7.2% to an intraday high of $8.60 in the first half of the session. Options on ETFC are more active than usual Options volume on the e-broker, pushing 9,000 contracts just before midday in New York, is more than two times the average daily volume for the stock. Calls are far more active than put options with a call-to-put ratio hovering around 7-to-1. Fresh interest building in short-term upside calls today suggests some traders are positioning for shares in ETFC to extend gains this week and next. Upwards of 4,300 calls changed hands at the Aug. $9.0 strike versus open interest of 2,651 contracts. Most of the calls in play were purchased for an average premium of $0.06 apiece and may be profitable at expiration next week in the event that E*Trade’s shares rally another 6.5% over the current price of $8.51 to top the average breakeven point at $9.06.

S – Sprint Nextel Corp. – Trading traffic in short-dated Sprint call options this morning indicates some traders are positioning for shares in the wireless provider to continue to print fresh 52-week highs as the week comes to a close. The stock, which has doubled since May, jumped 7.6% earlier in the session to touch a new 52-week high of $4.96. Buyers of around 3,000 Aug. $5.0 strike calls for an average premium of $0.03 each today may profit at expiration if shares in Sprint can top $5.03, the highest since July 2011. Traders may lose the $0.03 premium paid for the contracts this morning if the $5.0 strike calls expire worthless at the end of the week. Sprint’s shares are well off their highs of the session at present; up 3.25% on the day at $4.76 as of 12:15 p.m. ET.

About Caitlin Duffy 373 Articles

Affiliation: Interactive Brokers

Caitlin Duffy joined Interactive Brokers in 2009. In her role as Equity Options Analyst, Caitlin provides daily market commentary; highlighting various options trades, trading patterns and strategies of interest. Through Interactive Broker's webinar program, Ms. Duffy presents a number of educational, options-related events describing the theoretical pricing of options, the option Greeks as well as options strategies.

Interactive Brokers: Interactive Brokers offers direct market access to around 80 electronic global markets from a single account. Successful traders and investors understand that superior technology and lower trading costs can result in greater returns. For 32 years we have been building direct access trading technology that delivers real advantages to professionals worldwide. With consolidated equity capital of US $4.4 billion, IB and its affiliates exceed 1,000,000 trades per day. In addition, our prudent and conservative risk policies make Interactive Brokers a safe haven for your money. Discover some of the reasons why IB, the largest independent US broker/dealer, is the professional traders' and investors' choice.

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