Weekend Review – 7/14/2013

Options Action –

The first trade the guys threw out there was a put calendar on Caterpillar (CAT – 87.17).  The trade sells a CAT Jul 85 Put for 0.35 and buys a CAT Aug 85 Put at 1.60 for a net cost of 1.25.  The goal here is to own the August option for a drop on earnings and pay for part of the premium by selling a nearer dated put.  In fact it was mentioned if CAT is close to 85.00 but not under on Friday another near dated (Weekly) CAT Put may be sold.  This is a pretty dynamic trade to get short exposure into CAT’s earnings which appear to be scheduled for release on July 24.

The second trade was on the very popular stock Priceline (PCLN – 920.39) which may be approaching $1000 a share.  The idea is a bull put spread which uses strikes that actually make this a neutral to bullish put spread.  Looking to August expiration the PCLN Aug 900 Put is sold for 30.00 and the PCLN Aug 890 Put is bought at 26.00 for a net credit of 4.00.  As long as PCLN stays popular and over 900 through August expiration the trade profit is 4.00.

PCLN

A final trade was on Ebay (EBAY – 57.04) and is an earnings play as the company is due to report this coming Wednesday.  Another calendar spread is suggested with this one buying 1 EBAY Aug 55 Put for and selling 1 EBAY Jul 55 Put for 0.70 and a net cost of 0.50.  The goal here is EBAY close to 55.00 at the end of next week and then lower prices into August expiration.

Barron’s –

The Striking Price column took a look at Intel (INTC – 23.90) which is down 10% over the past month.  Recently with the stock at 23.25 the INTC Jul 22 Put could be sold for 0.15 which results in buying the stock on weakness or pocketing 0.15 at expiration if not assigned on that obligation.  Also a INTC Sep 25 Call could be purchased for 0.30, combining the two would result in the obligation to buy at lower prices and the right to buy at higher prices for a net cost of 0.15.  Also, since the short put expires first and since there are Weeklys available on INTC there may be another chance to sell a put before September expiration.

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Russell Rhoads, CFA

CBOE Options Institute

Russell Rhoads, CFA, is a Senior Instructor with the Options Institute at the Chicago Board Options Exchange. He joined the Institute in 2008 after a career as an investment analyst and trader with a variety of firms including Highland Capital Management, Caldwell & Orkin Investment Counsel, TradeLink Securities and…

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