Monday, February 7, 2011

Trade of the Day: JWN seller of 1,450 July 40/35 put spread and buys 1,450 July 46 calls

The Trade
A trader sold 1,450 July 40 puts at $2.08, bought 1,450 July 35 puts at $0.95, and bought 1,450 July 46 calls at $2.85 for a debit of $1.72 or $249,000.

As you can see from the risk/reward graph above, the spread is bullish. The maximum risk would occur at an underlying stock price of $35 and below. The max risk would be $974,400 which includes the debit and being put 145,000 shares of stock. The max profit potential is unlimited. The break even price is $47.72.

The line shown in the chart above is the upper break even price of $47.72. As you can see, the underlying stock price has not reached $47.72 in the past 2 years. The 52-week range is a low of $28.44 and a high of $46.22. Nordstrom announced today that it will report its fourth quarter and fiscal year 2010 financial results and 2011 outlook after the close of the financial markets on Thursday, February 17, 2011. Nordstrom also announced today the increased January same store sales of 4.8 percent.

Nordstrom traded 19,655 contracts today, nearly quadrupling the average volume of 5,503.

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