Options Intelligence Reports: Xerox Corp. (XRX) & McDonald's Corp. (MCD)
Straddle Seller Targets Xerox Corp.
XRX ñ Xerox Corp.
A sizable short straddle initiated on Xerox Corp. this morning suggests one strategist foresees limited movement in the price of the underlying shares going forward. Shares of the worldís leading enterprise for business process and document management are up 1.80% at $11.94 as of 11:45 am in New York.
The options trader looked to the April 2011 $12 strike to sell 10,000 calls and 10,000 puts for a gross premium of $2.10 per contract, or a total of $2.1 million. The investor keeps the full amount of premium received on the transaction if Xeroxís shares settle at $12.00 at expiration next year.
Short positions assumed in both call and put options at that strike expose the straddle-seller to losses in the event that shares in XRX rally above the upper breakeven price of $14.10, or should shares slip beneath the lower breakeven point at $9.90, ahead of April expiration. Xerox Corp.ís shares have not traded above $14.00 in at least two years, but have traded under $9.90 as recently as September 16, 2010.
MCD ñ McDonaldís Corp.
Investors are feasting on McDonaldís Corp. put options today, which may mean that some strategists are bracing for the price of the underlying shares to slide lower ahead of expiration day in January 2011. Shares of the worldís largest restaurant chain are down 0.45% at $78.95 as of 12:50 pm in New York trading.
More than 15,860 put options have changed hands at the January 2011 $75 strike versus previously existing put open interest of 5,294 contracts. The majority of the puts, some 11,895 contracts, were purchased for an average premium of $1.17 apiece. Put buyers may be enacting outright bearish bets on the stock or building up downside protection to hedge a long position in MCD shares.
Investors buying the puts outright are prepared to make money should shares of the Big Mac maker plunge 6.5% lower to breach the average breakeven point to the downside at $73.83 by expiration day in January. Yesterday, MCDís shares came within $0.10 of its all-time high of $79.90 after reporting a better-than-expected 6.5% rise in comparable-store sales in the previous month. Options implied volatility on the fast food chain is running 5.8% higher this afternoon to stand at 55.94% as of 1:00 pm.
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