Tuesday, August 23, 2011

Trade of the Day: NTAP March $45/$30 bull risk reversal

The Trade:
A trader executed 5,000 March $45/$30 bull risk reversals at an $0.08 credit, or $40,000.

This trade comes a day after a sale of 5,000 January $35 puts at $3.85 to open yesterday. Both show strong bullish action despite the recent fall on earnings. The underlying closed trading today at $37.79, up $2 or 5.59%. Shares are trading near its 200 week EMA and back near a Summer 2010 breakout level at $35. NTAP recently announced a $400M accelerated buyback plan. The trade has both unlimited risk and profit potential.

The white line shown in the stock chart is the strike price of the long call. The 52-week range is a low of $33.32 and a high of $61.02. NTAP trades at 12.5x earnings, 1.26 PEG, 11.8x cash flow and 2.8x cash value.

Alternate Trade
An alternative bullish strategy the trader could have executed is the bull vertical. This spread still profits from an increase in the underlying, but unlike the bull risk reversal, this trade has limited risk. One example would be to buy the March $50 call, and sell the $52.50 call for a $0.35 debit.


*Special thanks to Option Radar, BMO Capital, MEB Options, Bloomberg, Reuters, Optionistics, LiveVolPro, CBOE, AMEX, Option Monster, T.O.P. group, and all of the options desks and traders we work with to provide the option flow!

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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