Range-bound strategy in MetroPCS
David Russell | [email protected]
optionMONSTER's tracking systems detected the sale of 4,000 April 10 puts for $0.61 and 4,000 April 12 calls for $0.15. That totals $0.76, which the investor will keep as profit if the wireless-communications carrier closes between the two strike prices at expiration. Gains will erode outside that range, turning to losses below $9.24 and above $12.76.
The strategy stands to benefit from an uneventful earnings report because that would cause implied volatility, and therefore option prices, to drop. Known as a short strangle, the trade is designed to make money from the passage of time rather than a directional bet. (See our Education section)
PCS fell 1.29 percent to $9.95 on Friday. Shares have traded mostly between $9.50 and $10.50 for the last three months.
It's noteworthy that the trader chose the $10 and $12 levels in the short strangle because it suggests an expectation for modest upside in the next eight weeks. The trade accounted for more than 80 percent of the option volume in PCS on Friday.