Posts Tagged ‘Short Strangle’

A couple of weeks ago, we took a look at Deere & Co. (NYSE:DE) the day before its earnings report and outlined option strategies investors could use whether they expected positive or negative results.  As it turned out, DE surprised to the upside (by 22 cents, no less) and still moved lower over the next few days.  Some call this the “buy the rumor, sell the news” phenomenon.

If the bears had sold a December 67.50/72.50 call spread ahead of the report for $1.90, they’d be able to buy it back today for $1.50 (buying the 67.50 call and selling the 72.50 call), netting a small profit.  The bulls, however, wouldn’t have been so fortunate, especially if they had opted for a short-term strategy.

Deere is an interesting stock and it seems to have settled down from its post-earnings volatility, so we thought it might be time to revisit it. The agriculture company was in the news Tuesday after agreeing to sell its wind energy unit to Exelon Corp. (NYSE:EXC) for a cool $900 million. The sale is expected to close in the fourth quarter.

DE gained almost half a percent in Tuesday’s trading, outperforming the market.  At the close, the shares were trading at $63.27, up 29 cents.

For investors looking to learn more about option strategies that could work in their portfolios, we’ve outlined two potential trades below in Deere: one bullish covered strangle and one bearish long put spread. These are not trading recommendations, merely examples of different options trading strategies for educational purposes. For a complete dissection of the strategies including profit/loss information… (more…)