An explosion yesterday in Manhattan is responsible for injuring 30 people and the collapse of a building in NYC’s East Village neighborhood. The explosion and resulting fires destroyed four buildings before being extinguished. As the story developed yesterday Consolidated Edison, Inc. (ED) stock sold off hard on reports that crews were working on a gas line in the building the day of the explosion.
ED stock sold off nearly 3% from open to close yesterday as news of the explosion and its possible causes continued to hit the tape. This move lower perhaps was perhaps overdone as today shares are recovering in a relatively flat market. Shares of ED are currently trading at $60.20 and are higher by 2.41% today but have yet to take back all of yesterday’s losses. So how can a trader play a possible recovery or further downside using options?
With ED options implying a move of around $3.75 by May let’s look at two different strategies:
Potential Bullish Trade: Buying the ED May 62.5-65 Call Spreads for $0.50
Risk: $50 per 1 lot
Reward: $200 per 1 lot
Breakeven: $63.00
This trade offers a trader 4-1 on their money if ED trades above $65 on May expiration.
Potential Bearish Trade: Buying the ED May 57.5-55 Put Spreads for $0.55
Risk: $55 per 1 lot
Reward: $195 per 1 lot
Breakeven: $56.95
This trade is offering a trader better than 3.5-1 on their money if ED trades below $55 on May expiration.
Andrew Keene
President/Founder
KeeneOnTheMarket.com
