1. How to use GuruFocus - Tutorials
  2. What Is in the GuruFocus Premium Membership?
  3. A DIY Guide on How to Invest Using Guru Strategies
Dr. Paul Price
Dr. Paul Price
Articles (513)  | Author's Website |

InteractiveBrokers – Showing strength on a very down day.

May 14, 2010 | About:

InteractiveBrokers [NDQ:IBKR - $17.55] is up about 0.72% while virtually everything else is down today.

I’ve heard rumors that IBKR could be the target of a privatization by its founder and the price action in the calls seems to give some credence to this possibility.

January $20 and $22.50 calls have actaully traded at $1.05 and $0.45 already and with a bid/ask spread of $0.15/$0.30 on the so-far untraded January $25 calls.

The shares seem to have limited downside as they’ve already reflected some pretty poor recent quarterly results without suffering any damage.

A nice seven-month play…

Cash Outlay

Cash Inflow

Buy 1000 IBKR @ $17.55 /share


Sell 10 IBKR Dec. $17.50 calls @ $1.65 /share


Sell 10 IBKR Dec. $17.50 puts @ $1.60 /share


Net Cash Out-of-Pocket


If IBKR merely holds above $17.50 through the Dec. 18, 2010 expiration date:

· The $17.50 calls will be exercised.

· You will sell your shares for $17,500.

· The $17.50 puts will expire worthless.

· You will have no further option obligations.

· You will end up with no shares and $17,500 in cash.

This best-case scenario profit would be $17,500 - $14!2C300 = $3,200 for the 7.>5 months throug` expiration date.

$3,200/$14,300 = 22.3% cash-on-cash or about 37% annualized achieved on shares that

ü Go up.

ü Stay unchanged.

ü Hold at $17.50 or above.

What’s the risk?

If IBKR falls below $17.50 on Dec. 18, 2010:

· The $17.50 calls will expire worthless.

· The $17.50 puts will be exercised.

· You’ll be forced to buy another 1000 IBKR shares.

· You’ll need to lay out an additional $17,500 in cash.

· You’ll end up with 2000 IBKR shares.

· You’ll have no further option obligations.

What’s the break-even on the whole trade?

On the original 1000 shares it’s the $17.55 purchase price less the $1.65 call premium = $15.90 /share.

On the ‘put’ shares it’s the $17.50 strike price less the $1.60 /share put premium = $15.90 /share.

Your overall break-even would be $15.90 or (-9.4%) below the trade origination price of $17.55 /share.

Dr. Paul Price – May 14, 2010


Disclosure: Author is long IBKR shares and short IBKR options.

About the author:

Dr. Paul Price


Visit Dr. Paul Price's Website

Rating: 2.5/5 (11 votes)


GigaBubble - 7 years ago    Report SPAM
Seen those options spreads? Market makers making money. Why be short 20 puts when you think the Fly is gonna buy?

Please leave your comment:

GuruFocus has detected 7 Warning Signs with Interactive Brokers Group Inc $IBKR.
More than 500,000 people have already joined GuruFocus to track the stocks they follow and exchange investment ideas.

Performances of the stocks mentioned by Dr. Paul Price

User Generated Screeners

star1907Good company's
star1907Best dividends charlie
cspunarSpunar Div
patelmhMY VALUE
rael2222prova dcf
liuzishuoverwrite 'Dividend Initiation
liuzishuDividend Initiation
pbarker46Dividend Growth
Get WordPress Plugins for easy affiliate links on Stock Tickers and Guru Names | Earn affiliate commissions by embedding GuruFocus Charts
GuruFocus Affiliate Program: Earn up to $400 per referral. ( Learn More)

GF Chat