Options Trading News

September 12, 2012  Wed 9:56 AM CT

One investor expects a whole lot of nothing from Itau Unibanco.

optionMONSTER's tracking systems detected the sale of 2,500 March 16 calls for $1.93 and
2,500 March 16 puts for $1.37. That translates to a net credit of $3.30.

The investor will keep that money if the Brazilian lender closes at $16 on expiration. Gains will erode to the upside or downside, turning to losses below $12.70 and above $19.30. (See our Education section for more on the strategy, which is known as a short straddle.)

ITUB rose 1.65 percent to $16.68 in morning trading and has lost more than one-fifth of its value in the last six months. The stock has struggled against negative sentiment toward emerging markets as hopes of strong growth have been dashed by weakness in China and the failure of left-leaning politicians to continue pro-market reforms in Brazil.

While shares have rebounded since July, they're been trapped between declining 100- and 200-day moving averages. That could be leading some chart watchers to expect a period of consolidation, which would explain the use of a market-neutral trade such as a short straddle.
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As I stated in last week's article, a break out or a break down needs to have a couple things happen before it is considered a confirmed break out or break down. The only problem is that in today's market where things move much more quicker than they did just a few years ago, two days could wind up being the majority of the expected movement, if not the whole movement.

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