A very large put spread traded in Sun Microsystems (JAVA, news, chart) yesterday, with customer paying 13 cents to buy 45,000 July 9-10 put spreads on the AMEX at the end of the day. Stock closed at $10.88 and earnings are expected at the end of July but not before this put spread will expire. The trade was opening for the client, and is notable because it creates the largest open interest in the options on this stock. As JAVA trades just under 17 million shares daily, if near the $10 strike at expiration the gamma hedging impact will be significant. Payoff for the customer is a simple outlay (and maximum loss) of $585,000 with a potential gain of 3.9 million if the stock winds up at or below $9 on in 3wks.
About the Author (Author Profile)
Henry Schwartz is the president of Trade Alert LLC, a provider of real-time options analysis tools to leading Wall Street firms. His systems analyze hundreds of thousands of transactions per second to help professionals identify and interpret market activity in real time, supporting informed trading decisions and intelligent idea generation. He has held institutional trading and management roles with Bank of America, Bear Stearns, Salomon Brothers and the Hull Group, and made markets on the CBOE and AMEX floors in the US, and EUREX and MONEP overseas. Prior to founding Trade Alert, he led the electronic market-making group at Bank of America coincident with the launch of the International Securities Exchange. He received his bachelor’s degree in Economics from the University of California, San Diego and his MBA from NYU’s Stern School of Business.