RadioShack Corp. (NYSE: RSH ) shares continue to trade in the red amid rumors that Blackstone was interested in acquiring the electronics company. Options action during the trading session on Tuesday suggests at least one investor expects the stock movement to subside and for volatility to come in during the near term.
RSH shares dropped more than 5%, or $1.16, to $21.25 during afternoon trading on Wednesday. The stock is trading roughly 11% off its 52-week high of $24 reached in April. The company has not confirmed its next earnings release date, but the market expects the report around July 26. News hit the wires today and private equity interest in RSH has slowed but the asking price remains high. Despite the significant drop in the stock, one investor sold a near-dated straddle calling for a range.
At 11:53 a.m. EST, approximately 5,000 August 21 straddles changed hands for a net premium of $2.80 per spread. The August 21 calls crossed the tape for $1.55 per contract and the August 21 puts changed hands for $1.25 per contract - these prices were closer to the bid price when the volume hit the tape. Current open interest in the calls is 565 contracts and the puts are home to current open interest of 1,700 contracts. This options action suggests an investor chose to cap maximum profit at the credit collected to open a short straddle on RSH. The investor will make a maximum profit of $2.80 per straddle if RSH shares are trading at the strike price at August options expiration. If the stock is trading higher than $18.20 but lower than $23.80 at expiration, the investor will retain some or all of the credit. If volatility spikes and the stock moves significantly lower or higher than the breakeven levels, the investor could lose a maximum of $18.20 to the downside or theoretically incur unlimited losses to the upside.
Implied volatility of the August 21 calls and puts is 53% compared to the stock's 30-day historical volatility of 38%. Short straddle plays such as this indicate this investor is willing to cap gains and increase risk to call for a range in the stock during the near term.