DELL put spread

Discussion in 'Options' started by Stoxtrader, Feb 15, 2011.

  1. Dell earnings after close today (Tuesday 2/15) I believe...

    What's behind big put spread in Dell

    The options volume in Dell is nearing 100,000 contracts today, driven by a big March put spread.

    The average daily volume in DELL is 19,000 contracts, and the one position included more than twice that amount today as a trader bought 25,000 March 13 puts for $0.24 and sold the same number of the March 12 puts for $0.08. The volume at both strikes was more than twice the previous open interest.

    This put spread costs the trader just $0.16, with the sale of the lower strike reducing the total cost by 33 percent. That $0.16 is the maximum risk in this part of the trade. If DELL is below $12 at expiration, the trade will make $0.84. This could be a hedge on long shares, but given that the nature of the trade it seems unlikely.

    DELL trades at $13.86 this morning, down 1.63 percent on the day. It has been trading in a range between $14.50 and $13 since early November (dark orange lines on chart). Shares were below $12 in late August.
  2. didnt work..

    but in general, i dont think writing a 0.08 $12 strike with 1 month left is ever a good idea, especially when the underlying was only 13% away before earning. If you wanted to play the downside in this case, should just bought 13P, not everything has to be a spread..

    i mostly do 3+ week out straddles or near money strangles on earning and close it out 1 day after. The only risk is then IV drop > delta, which you already know going into the position.