Options: Betting on a Range in Safeway (SWY)

Safeway (SWY) did not announce any notable news today, but one investor boosted options activity on a bet that the super market’s stock is range bound.

An investor sold 6,000 January 20 straddles at $2.50 per spread with the stock trading around $19.50. This translates to an implied volatility of 28, compared with a 63-day realized volatility of 63. The in-the-money January 20 puts, currently trading down 20 cents, are home to current open interest of 7,871 contracts, and the out-of-the-money January 20 calls, currently trading up 10 cents, are home to current open interest of 7,070 contracts, according to ONN.tv’s Sidewinder report.

SWY shares are up 30 cents so far on the day to $19.50. This straddle seller is betting on volatility to slow and time decay to kick in throughout the next four months and for the stock to remain in a range to make money.

The investor needs SWY shares to expire between $17.50 and $22.50 (the break-even prices of the straddle), and can make a maximum profit of $2.50 per spread (the premium collected today, minus opening commissions).

One other thing to note is that because this investor is selling the 20 strike, which is slightly out-of-the-money to the upside, the investor makes the most money if the stock rallies slightly. So this straddle sale is slightly bullish. Another thing to note is that SWY is still more than 15% below its highs of this year, reached back in January. Given how SWY has underperformed the broader market this year, the investor could be betting not only on a decline in implied volatility, but a slight rally in the shares to get back some of the underperformance.