Options Trading News

July 3, 2012  Tue 11:01 AM CT

A trader sees shares of Seagate Technology trapped in a limited range for the next couple of weeks.

STX is up 2.02 percent today to $25.05, continuing to rally since bouncing off support just below $22 a month ago. Shares of the computer hard-drive maker traded at a 52-week high of $32.55 at the start of May.

Seagate's total option volume of 39,000 is twice its daily average. A trader bought 9,300 August 25 calls for the ask price of $1.53 and, at the same time, sold 9,300 July 25 calls for the bid price of $1.03, according to optionMONSTER's systems. The volume at each strike was more than open interest, so this is a new calendar spread.

The strategy is designed to profit if STX is around that $25 strike price by expiration. The July options will decay more quickly than those in August.

The maximum risk in the trade is the debit of $0.50, at least up until the first expiration. That loss would be realized if shares have moved sharply in either direction by expiration. (See our Education section)
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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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