OptionsHouse

Options Trading News

September 5, 2013  Thu 3:16 AM CT

CBI: SEE CHART GET CHAIN FIND STRATEGIES
Someone is hedging a bet in Chicago Bridge & Iron with the shares on the verge of a historic breakout.

optionMONSTER's Depth Charge monitoring system detected the purchase of 2,000 January 55 puts for $1.95. Equal numbers of contracts were sold at the same time in the January 50 puts for $0.75 and the January 70 calls for $0.70, translating to a cost of $0.50.

The trader probably owns shares in the engineering company and is using the options as a hedge. He or she now stands to collect $5 if the stock falls to $50 by expiration in mid-January but has also agreed to sell the position for $70 if it goes to that level. The strategy combines elements of a covered call with a vertical spread. (See our Education section)

CBI fell 0.89 percent to $59.91 yesterday but is up more than 60 percent in the last year. It has rallied back to its previous all-time highs from late 2007 and early 2008, which could leave some chart watchers concerned about a pullback. Yesterday's three-way strategy provides protection against a decline while holding out the potential for $10 in profit.

Total option volume in the name was 7 times greater than average in the session, according to the Depth Charge.
Share this article with your friends


Related Stories

CBI

Chicago Bridge & Iron draws puts

April 15, 2015

Traders are positioning for a possible pullback in the engineering and construction company after it reports earnings next week.

OptionsHouse

Premium Services

Education & Strategy

Vega

There is another Greek which measures the effects on an option's price buy changing the amount of extrinsic value in the option, and that Greek is Vega...

View more education articles »