Thursday, January 14, 2010

CH Robinson (CHRW) - 4 Legged Bull Bet

CHRW is trading 57.39. The LIVEVOL™ Pro Summary is below.

The company has traded nearly 34,000 options today in the first 2 hours on total daily average option volume of 2,088. 32,000 contracts were one 4 legged trade. The Company Tab snapshot is below (click the image to enlarge).

The big 4 legged August trade was:
Sell 12,000 50/65 strangles @ 3.275 (1.35 in calls + 1.925 in puts).
Buy the 55/60 call stupid for 8.75 (5.65 in 55 strike calls + 3.10 in 60 strike calls).

Total spread cost: 4000*100*$8.75 - 12,000*100*$3.275 = $430,000 credit

The day's biggest trades and Option Tab snapshots are included below (click either to enlarge). Note the small OI on all lines - these were all opening.

The trade is bullish. Analyzing a multi-leg trade is easiest done by separating the legs into smaller trades that make sense.

Here's one way to analyze the trade.

(1) Long 8,000 calls (4,000 55's and 4,000 60's), Short 12,000 calls (65's)
(2) Sell 12,000 puts

So it's a 1 x 1.5 call spread financed by a put sale. This is a bullish bet for a credit with downside risk and a limited upside reach. The PnL chart is included below.

Max gain occurs at $65: $6,430,000
Breakeven Low: ~$49.64
Breakeven High: ~$81.07

Clearly a bullish bet - with an expectation that stock goes to 65 (ish). The Charts Tab snapshot is included below for convenience.

Note the IV30™ (red line) is above the HV30™ (blue line). This trade does make money if the stock just sits - it is a credit.

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