Traders pass the time with straddles
David Russell | [email protected]
optionMONSTER's tracking programs detected so-called straddles in Regions Financial and Illumina yesterday. Both are looking for a range-bound movement through the summer.
In RF, a trader sold 7,600 July 9 calls for $0.32 and 7,600 July 9 puts for $0.24, resulting in a credit of $0.56. Less than 20 minutes later, a similar transaction appeared in genetic-testing company ILMN, with the August 70 puts sold for $3.30 and the August 70 calls sold for $4.20. Some 1,915 contracts traded in each and the credit collected was $7.50.
Each trade will earn maximum profit if its stock closes at the strike price on expiration. That would be $9 for RF on July 19 and $70 on ILMN four weeks later. Both companies have outperformed the S&P 500 by wide margins in recent months.
The investors apparently think that the broader market could remain under pressure but expect ILMN and RF to hold their ground. The RF trade will make money if the stock closes between $8.44 and $9.56, while ILMN's profitable range is from $62.50 to $77.50. (See our Education section for more on how to make money from the passage of time rather than directional moves.)
RF finished at $9.10, unchanged on the day, while ILMN surged 3.19 percent to $72.16. Total option volume was more than 6 times greater than average in both.