Wednesday, May 4, 2011

Trade of the Day: Macy's June $24/$27 short strangle

The Trade:
A trader sold 4,240 June $27 calls at $0.41 and sold 4,240 June $23 puts at $0.38 for a credit of $0.79 or $334,960.

As you can see from the graph above, the strangle has limited profit potential, and unlimited risk in either direction.The maximum profit potential is the credit of $334,960. The lower and upper break even underlying stock prices at expiration are $22.21 and $27.79. Macy's closed today at $25.40.

The lines shown are the break even prices for the short strangle. The spread is profitable if the underlying stock is between the break even prices by June expiration.

The 52-week range for M is a low of $16.92 and a high of $26.32. Macy's reports earnings on May 11th. Macy's traded 49,704 contracts today compared to average daily volume of 12,297.

No position at this time. Position declarations are believed to be accurate at time of writing but may change at any time and without notice.

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