Health Management Associates, Inc. (HMA) –
A sizable short straddle on the provider of health care services yields
maximum benefits to the seller at expiration if the price of the
underlying stock remains fairly stagnant in the next couple of months.
Shares in Health Management Associates fell 1.75% this afternoon to
$10.69 just before 12:30pm in New York. Options volume in the amount of
10,000 calls and 10,000 puts employed by the straddle-strategist is huge
compared to overall previously existing open interest on HMA of 12,857
contracts. It looks like the trader sold the straddle outright,
receiving $0.45 per contract on the sale of 10,000 calls at the August
$11 strike, and taking in $0.90 per contract on the sale of 10,000 puts
at the same strike. Gross premium pocketed on the trade amounts to $1.35
per contract, which the trader keeps in full if shares in HMA settle at
$11.00 at expiration day in August. The investor may retain some
portion of the $1.35 per contract as long as shares remain range-bound
within the upper breakeven price of $12.35, and the lower breakeven
point at $9.65, through expiration. Shares in the health care provider
have traded above $9.65 since the end of February, and have not topped
$12.35 since 2007. Of course, the options player need not hold the
position through expiration to make the transaction worth his while. The
effects of time erosion on options premium as well as lower volatility
could be beneficial for the investor, and may allow him to buy back the
straddle at an advantageous price at some point ahead of August
expiration. Health Management Associates is scheduled to report
second-quarter earnings after the closing bell on July 26, 2011.
Dell, Inc. (DELL) –
Shares in the PC maker are up 3.00% to arrive at $16.06 as of noon on
the East Coast, but it looks like one options trader is prepared for the
price of the underlying to pull back ahead of July expiration. The
investor appears to have sold around 2,500 July $17 strike call options
in order to offset the cost of buying the July $14/$15 put spread, 2,500
times. The trader pockets a net credit of $0.02 per contract on the
three-legged spread, and keeps the full amount as long as shares trade
below $17.00 through expiration day. Additional profits are available
should shares in Dell decline 6.6% from the current price of $16.06 to
breach $15.00 at expiration.