Heavy put volume hit the tape in
Frontier Communications Corp. (NYSE: FTR )
on Tuesday without a clear catalyst, but it looks like investors
took moderately bearish stances on the company.
At 9:50 a.m. EST, a block of
20,000 front-month July 5-7.5 puts spreads changed
. Just three minutes later, another block of
20,000 August 5-7.5 put spreads crossed the tape.
Current open interest of the July 5 puts is four contracts and the
July 7.5 puts are home to current open interest of 5,000 contracts.
On the other hand, the August 5 puts are home to current open
interest of 82 contracts and current open interest in the August
7.5 puts is roughly 12,000 contracts. This options action suggests
both put spreads were initiated to open. The front-month 5-strike
puts crossed for two cents per contract (closer to the bid price at
the time of the trade) while the July 7.5 puts changed hands for an
average price of 22 cents per contract (closer to the ask price
when the volume hit the tape), suggesting investors paid a net
debit of 20 cents per bear put spread. This pricing action is
similar to the August 5-7.5 put spread, as the 5-strike puts
changed hands for three cents per contract (closer to the bid price
when the trade crossed the tape) and the 7.5-strike puts traded two
cents lower than the ask price at 43 cents per contract, meaning
the August bear put spread cost the investor a net debit of 40
cents per spread. The front-month bear put spread will turn a
maximum profit of $2.30 (the difference between the strikes minus
the premium paid) if FTR shares are trading below $5 at July
options expiration. The August put spread buyer will make a maximum
profit of $2.10 if the stock is trading below $5 at expiration (the
stock needs to drop at least 35% before investors make money on
these spreads). Maximum loss on these bear put spreads is the net
debit paid per spread.
You can visualize the risk/reward dynamics of these bear put
spreads and other stock and option plays by opening a free
virtual trading account
- by doing so, you gain access to essential trading tools such as
the probability and profit/loss calculators.
FTR did not announce any news today, and the stock dropped 11
cents, or more than 1%, to $7.75 during morning trading. The
company announced earnings of 16 cents per share (beating estimates
by one cent) on May 6, and the market does not expect another
earnings release until around Aug. 3.