Options Intelligence Report: Aetna, Inc. (AET) & Sherwin-Williams Co. (SHW)
AET ñ Aetna, Inc.
Shares of health benefits company, Aetna, are up 0.55% to $34.65 on the first trading day following House passage of health-care overhaul legislation. Near-term options activity on the stock indicates volatility players are hard at work today. Investors initiated short strangles on Aetna in the April contract, which is beneficial for options traders if shares of the underlying stock remain range-bound through expiration day.
Investors shed approximately 6,200 puts at the April $34 strike for an average premium of $1.16 apiece in combination with the sale of about the same number of calls at the higher April $38 strike for $0.17 each. The short strangle yields gross premium of $1.33 per contract, which investors keep if Aetnaís share price trades within the range of $34.00 to $38.00 through expiration day.
Short-strangle players are exposed to losses should shares rally above the upper breakeven price of $39.33, or if shares slip beneath the lower breakeven point at $32.67, ahead of expiration day in April. Options implied volatility on Aetna is down 8% to 34.63% as passage of the health care bill allowed the market to breathe a slight sigh of relief.
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SHW ñ Sherwin-Williams Co.
Paint producer, Sherwin-Williams Company, attracted bullish options players during the trading day as shares of the underlying stock improved 0.66% to $65.73. Optimistic individuals scooped up more than 7,100 call options at the April $70 strike for an average premium of $0.27 per contract. Call-buyers at this strike stand ready to amass profits should Sherwin-Williamsí share price increase 6.90% from the current price to exceed the effective breakeven point at $70.27 by April expiration.
Sherwin-Williamsí shares must break through the current 52-week high of $66.17 attained on March 17, 2010, and continue to rally through price levels not experienced by SHW since August 27, 2007, when the stock traded up to $70.95, in order for call-buyers to realize profits by expiration in a few weeks time. The jump in demand for options on SHW lifted the stockís overall reading of options implied volatility 22.2% to 24.01% as of 12:35 pm (ET).
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