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Saturday, September 22, 2012 4:34:23 PM
$RL Trade sees Ralph Lauren being range bound
Yesterday morning one trader sold 2,000 October 155x puts at $4.02 to collect $804,000. At the same that trader purchased 1,000 October 160x puts at $6.66 for $666,000.
It appears to be a trade for range bound action on RL. The goal is for RL to stay at or above $155 by expiration in order to let the 155x puts expire worthless to collect the premium while taking a slight loss on the 160x puts, however still ending up in profit overall.
For example if RL is trading at $156 by expiration the trader would collect the full $4.02 premium on the 150x puts as they would be expiring out of the money. At the same time the 160x puts would be worth $4.00 which means the trader would lose $2.66 of premium on that strike ($6.66 – $4.00 = $2.66). In the end the trader would still collect $1.36 in premium.
However in this situation because the trader purchased twice as many contracts on the 155x puts they would collect $804,000 on the 155x puts and only lose $266,000 on the 160x puts ending up with a profit $538,000.
Yesterday morning one trader sold 2,000 October 155x puts at $4.02 to collect $804,000. At the same that trader purchased 1,000 October 160x puts at $6.66 for $666,000.
It appears to be a trade for range bound action on RL. The goal is for RL to stay at or above $155 by expiration in order to let the 155x puts expire worthless to collect the premium while taking a slight loss on the 160x puts, however still ending up in profit overall.
For example if RL is trading at $156 by expiration the trader would collect the full $4.02 premium on the 150x puts as they would be expiring out of the money. At the same time the 160x puts would be worth $4.00 which means the trader would lose $2.66 of premium on that strike ($6.66 – $4.00 = $2.66). In the end the trader would still collect $1.36 in premium.
However in this situation because the trader purchased twice as many contracts on the 155x puts they would collect $804,000 on the 155x puts and only lose $266,000 on the 160x puts ending up with a profit $538,000.
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