Markets

Schlumberger options activity ahead of earnings release (NYSE: SLB)

Schlumberger Ltd. (NYSE: SLB ) shares are edging up on the day Wednesday just a couple days ahead of the oil and gas name's earnings announcement, and an interesting spread trade that just crossed the tape suggests an investor expects the stock could rally a little, and see a decline in implied volatilities.

During early afternoon trading, SLB shares were up 25 cents to $68.10, and the company is due to announce earnings figures on April 23 before the market opens (analysts estimate earnings of 61 cents a share).

Before dissecting the following spread action in SLB, consult the graph below and build a profit/loss graph to fully grasp the trade. You can open your own free

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At 11:25 a.m. EST, a one-by-two November 70-80 call spread crossed the tape simultaneously with a short put play. The investor bought the November 70 calls 5,000 times for $5.05 per contract and sold twice as many November 80 calls for $1.90 per contract, which would be a moderately bearish position if this spread were isolated. However, add a short put position, as the investor sold 5,000 November 55 puts for $2.16 per contract, and the risk profile suggests this investor expects the stock could climb right to $80 throughout the later-term. If the stock trades right at $80, investors could make a total maximum profit of $5,433,537. Investors make money if SLB shares stay higher than $54.09 and below $90 prior to November options expiration.

Implied volatility of the November 70 calls is 31%, and the November 80 calls have an implied volatility of 28%. The November 55 puts have an implied volatility of 35% compared to the stock's 30-day historical volatility of 24%. SLB has not reached $80 since October 2008, but at least one investor anticipates the stock to climb back to that level this fall.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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