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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The covered call and unhedged risk

I have written a few things on the Covered Call Strategy over the last two weeks. Please understand that those two previous articles plus this one do not constitute a proper, fully in-depth lesson on the Covered Call Strategy like we have in our classes at Option Monster Education. I have picked out a few topics that I believe were worth noting and today I am going to add the final one.

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