IB Options Brief: Coca-Cola Co. (KO) & Altera Corp. (ALTR)
KO ñ Coca-Cola Co.
One options strategist utilized Coke call options in order to take a bearish stance on beverage maker Coca-Cola Co. this morning. Shares in Coca-Cola are currently lower by 0.60% to arrive at $64.12 as of 11:55 am. The pessimistic player enacted a credit spread, selling some 22,000 calls at the January 2011 $65 strike for a premium of $1.10 each, and buying the same number of calls at the higher January 2011 $67.5 strike at a premium of $0.35 apiece. The investor pockets a net credit of $0.75 per contract on the transaction, and keeps the full amount of premium received as long as KO shares fail to rally above $65.00 through January expiration.
The spread suggests the trader does not expect Coca-Colaís shares to break above the current 52-week high of $64.96, attained this past Thursday on December 2, 2010. The parameters of the trade expose the investor to maximum potential losses of $1.75 per contract in the event that the price of the underlying stock jumps more than 5.25% over the current price of $64.12 to exceed $67.50 ahead of January expiration day. Losses on the spread start to accumulate should shares of the beverage manufacturer rally above the effective breakeven price of $65.75 before the contracts expire next year.
ALTR ñ Altera Corp.
Shares of the semiconductor company fell as much as 1.6% today to hit an intraday low of $37.10, but have recovered somewhat, and currently stand 0.65% lower on the day at $37.47 as of 12:40 pm in New York. Alteraís shares reached a new 52-week high of $37.81 on Friday, December 3, 2010. One option trader looked to the December contract to purchase a plain-vanilla put spread in case shares in Altera Corp. continue to decline ahead of expiration in a couple of weeks.
The investor picked up 1,250 puts at the December $37 strike at a premium of $0.75 each, and sold the same number of put options at the lower December $35 strike for a premium of $0.20 apiece. Net premium paid to initiate the spread amounts to $0.55 per contract. Thus, the trader stands prepared to make money in the event that Alteraís shares fall another 2.7% from the current price of $37.47 to breach the effective breakeven point to the downside at $36.45.
Maximum potential profits of $1.45 per contract are available to the trader should shares plunge 6.6% lower to trade below $35.00 ahead of December expiration day. The spread could be the work of either an outright bearish player expecting to reel in profits if shares slide lower, or an investor protecting the value of a long position in the underlying shares through expiration. Options implied volatility on Altera Corp. is up 5.2% at 31.32% as of 12:50 pm.
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