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Options Player Puts the Strangle-Hold on Cablevision Systems Corp.

 Today’s tickers: CVC, OSTK, AKS, SLB, MON, NDAQ & WGO

CVC - Cablevision Systems Corp. – A short strangle implemented on the cable operator during afternoon trading indicates one strategist expects shares in Cablevision Systems Corp. to remain range-bound through June 2011 expiration. Cablevision’s shares rose earlier in the day, but are down 0.35% to arrive at $34.57 as of 3:40pm in New York. It appears the strangle-player sold 20,000 calls at the June 2011 $38 strike at a premium of $1.25 each, and sold the same number of puts at the lower June 2011 $29 strike for a premium of $0.85 apiece. Gross premium pocketed by the investor amounts to $2.10 per contract. The trader keeps the full amount of premium received on the transaction as long as shares in CVC trade within the confines of the strike prices described through expiration day next year. Short stances taken in both call and put options expose the trader to losses in the event that CVC’s shares soar 16.0% higher to trade above the upper breakeven point at $40.10, or should shares plunge 22.2% lower to breach the lower breakeven price of $26.90 ahead of June expiration.

OSTK - Overstock.com, Inc. – The online retailer’s shares are up more than 4.4% in the final minutes of the trading session to stand at $17.22. Overstock.com made its way onto our scanners late in the trading day due to bullish activity in the front month. Investors expecting shares to continue to rally ahead of expiration day tomorrow purchased more than 1,500 calls at the December $17.5 strike for an average premium of $0.23 each. Call buyers profit if OSTK’s shares rally another 3.0% to surpass the average breakeven price of $17.73 by expiration. Options implied volatility on Overstock.com is up 12.5% at 54.96% as of 3:45pm.

AKS - AK Steel Holding Corp. – Call options on the steel producer are flying off the shelves today with shares in AK Steel Holding Corp. rising as much as 5.8% during the session to an intraday high of $15.25. Trading traffic in AK Steel calls is heaviest at the January 2011 $19 strike where more than 10,400 contracts changed hands by 2:00pm in New York, versus previously existing open interest of just 677 contracts. The overwhelming majority of the calls were purchased at an average premium of $0.06 apiece. Roughly half of the volume at that strike was picked up by one investor who paid $0.06 to take ownership of 5,500 of the calls. The transaction positions the investor to benefit from continued bullish movement in the price of the underlying shares through expiration day next month. Premium on the calls will appreciate if shares rise in value, which may create opportunities for the investor to profit should he choose to sell the deep out-of-the-money contracts for more than the $0.06 apiece paid during the current session. But, the calls will land out-of-the-money and thus expire worthless next year unless AK Steel’s shares rally more than 24.6% to trade above $19.00. In-the-money calls at the January $15 strike and calls at the January 2011 $16 strike are generating significant volume today, as well. Shares in AK Steel Holding Corp. last traded above $19.00 back on April 26, 2010, and reached a 52-week high of $26.75 in January 2010.

SLB - Schlumberger, Ltd. – A four-legged transaction on the oil services company today appears to be the work of an investor positioning for the price of the underlying stock to rise ahead of May 2011 expiration. Schlumberger’s shares are up 0.10% to arrive at $80.80 as of 12:30pm. The options strategist initiated a short strangle in order to partially finance the purchase of in- and out-of-the-money calls. It looks like the investor sold 7,500 calls at the May 2011 $95 strike for a premium of $1.63 each in combination with the sale of 7,500 puts at the lower May 2011 $65 strike at a premium of $1.61 apiece. The trader received approximately $2,662,500.00 on the sale of the strangle. Next, he picked up 2,500 in-the-money calls at the May 2011 $80 strike for a premium of $6.74 each, and purchased 2,500 calls at the higher May 2011 $85 strike at a premium of $4.52 a-pop. Applying the premium received on the sale of the strangle to the $2,810,000.00 paid to purchase the call options reduces the investor’s net cost for the four-legged trade to roughly $147,500.00. The transaction positions the investor to benefit handsomely from continued bullish movement in the price of Schlumberger’s shares through May expiration. The May 2011 $65/95 short strangle also signals a price range in which this investor sees SLB’s shares trading going forward.

MON - Monsanto Co. – Long-term bulls have been planting debit call spreads in the April 2011 contract throughout the trading week, and continued sowing the seeds of optimism on Monsanto this morning. Investors employing call spreads may enjoy a bountiful harvest by April expiration should the price of MON’s shares grow substantially in the next four months. Shares of the seed maker are currently up 1.55% to stand at $61.45 as of 11:45am. It looks like traders populating the options field this morning scooped up some 3,000 calls at the April 2011 $62.5 strike for an average premium of $3.58 each, and sold the same number of calls at the higher April 2011 $72.5 strike at an average premium of $0.97 apiece. The average net cost of the spread amounts to $2.61 per contract. Thus, bullish players are prepared to profit in the event that MON’s shares surge 5.95% over the current price of $61.45 to surpass the average breakeven point to the upside at $65.11 by April expiration day. Investors may accumulate maximum potential profits of $7.39 per contract if Monsanto’s shares jump 18.0% to trade above $72.50 ahead of expiration next year. Shares in Monsanto Company last traded above $72.50 back on March 25, 2010.

NDAQ - NASDAQ OMX Group, Inc. – Shares of the global exchange group increased as much as 7.3% this morning to hit an intraday- and new 52-week high of $24.18 after Nasdaq said it will repurchase approximately 22.8 million common shares from Borse Dubai for $21.82. News that Investor AB intends to increase its stake in NDAQ to 9.7% also helped shares higher today. Options traders were quick to assume bullish positions in the name today, buying more than 2,375 calls at the January 2011 $25 strike for an average premium of $0.38 apiece. Call buyers are prepared to make money should NDAQ’s shares rally another 5.0% over today’s high of $24.18 to surpass the average breakeven price of $25.38 by expiration day next month. The rise in demand for calls on Nasdaq pushed up the stock’s overall reading of options implied volatility 17.4% to 30.55% by 11:35am in New York.

WGO - Winnebago Industries, Inc. – Shares of the motor homes manufacturer shot up 14.6% today to secure an intraday- and 6-month high of $15.00 after Winnebago posted better-than-expected earnings for the first quarter before the opening bell this morning. Winnebago earned $0.13 a share in the first quarter versus a loss of $0.05 a share in the same period last year. The stock is currently up 13.2% to arrive at $14.82 as of 1:20pm in New York. The Forest City, Iowa-based firm popped up on our scanners at the start of the session due to heavier than usual trading in call options. More than 2,180 calls changed hands at the January 2011 $15 strike, which had previously existing open interest of just 156 contracts. It looks like bulls purchased at least 1,000 of the calls at that strike for an average premium of $0.45 apiece. Call buyers stand ready to make money should shares in Winnebago rise 4.25% over the current price of $14.82 to exceed the average breakeven price of $15.45 ahead of expiration day next month. Options implied volatility on WGO fell 16.6% to 46.42% in early afternoon trading.


Andrew Wilkinson

Senior Market Analyst

ibanalyst@interactivebrokers.com

Caitlin Duffy

Equity Options Analyst


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