Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Strategies & Market Trends : Tech Stock Options -- Ignore unavailable to you. Want to Upgrade?

To: sergio who wrote (33083)	1/13/1998 11:03:00 PM
From: RedMango	Respond to of 58727

From thestreet.com....... Options Buzz: It's Christmas in January for Telebras; Intel Keeps Rolling By Dan Colarusso Staff Reporter 1/13/98 1:34 PM ET It may be the third week of January, but one institutional options player is putting up what traders call a "Christmas tree spread" with Telebras (TBR:NYSE ADR), speculating against a major recovery in the emerging markets. Sources said the institution entered the market to sell 10,000 contracts each of Telebras April 125 and 130 calls and buy 10,000 of the Brazilian telecom giant's April 115 calls just before 11 a.m. EST. The April 125s were sold for 5 3/4 (or $575) and the April 130 calls cost 4 3/8 (or $437.50). The April 115 calls, closer to having some value -- being in-the-money, in trader's parlance -- with Telebras shares up 1/16 to 105 13/16, cost 8 3/4 (or $875). The trade's maximum profit would come if Telebras shares cap out at 125 because the institution can exercise the 115 calls without the risk of having the 125 calls assigned (or exercised by a buyer). That's because the April 125 calls it sold likely wouldn't be exercised at 125 because the cost of the premium and commissions make the trader a loser at exactly at the strike price. With some Latin America analysts targeting 175 as a 12-month projection on Telebras shares, this trade is banking on growth in emerging markets remaining subdued. If the price rises above 130 in that same time frame, the risk is tremendous to the institution because it is short the shares of Telebras, having sold twice as many contracts (10,000 in each of the 125 and 130 calls), as it bought at 115. If the price stays below 115, the institution wins on a smaller scale, because it took in more premium on the two options it sold than it paid for the one it purchased. Chicago floor traders said today that the spread strategy used is likened to a Christmas tree because the investor is using the sale of two less expensive options to help defray the premium of the more expensive contract. Telebras typically is used as a proxy for the Brazilian market, which would likely be hurt by continuing weakness in Asia. The April expiration cycle gives the position three months to mature and for the Asian contagion to wane.