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Time Warner Cable Call Buyer Tunes in for a Rally

Today’s tickers: TWC, RVBD, EXPE & CL

TWC - Time Warner Cable Inc. – An investor expecting shares in Time Warner Cable to pop ahead of March expiration initiated a large stock and option combination play just before 12:30pm in New York. Shares in the TWC are currently down 0.80% this afternoon to stand at $70.53. It looks like the trader enacted a delta neutral position, selling 150,000 shares of the underlying at $70.60 each, and buying 10,000 calls at the March $75 strike at a premium of $0.25 a-pop, on a 0.15 delta. The risk profile of the transaction is such that the trader may benefit somewhat on the short stock leg of the transaction should shares in the name slip in the near term. But, the profit and loss parameters of the position dictate substantially greater gains if Time Warner’s shares surge ahead of expiration day next month. If shares rally, gains on the long calls, which represent a far larger stake in the underlying than the 150,000 shares of which the investor is short, will trump losses realized on the short stock. The investor is well positioned to benefit nicely should the price of the underlying react as he predicts it will. Time Warner Cable’s reading of options implied volatility is up 5.1% on the session at 21.26% as of 1:30pm.

RVBD - Riverbed Technology, Inc. – Shares in Riverbed Technology increased as much as 4.0% this morning to secure an intraday- and new all-time high of $43.54. One big options player appears to be using call options in the name to position for the bullish momentum to continue through June expiration. It looks like the trader picked up 15,000 deep in-the-money calls at the June $39 strike for a hefty premium of $7.30 each, and sold the same number of calls at the higher June $45 strike at a premium of $3.90 apiece. The net cost of the spread amounts to $3.40 per contract. Thus, the trader is positioned to make money in the event that Riverbed’s shares exceed the average breakeven price of $42.40 through expiration day in June. Maximum potential profits of $2.60 per contract pad the investor’s wallet should shares in Riverbed Technology rally another 3.35% to trade above $45.00 before the options expire.

EXPE - Expedia, Inc. – Diverse options strategies initiated on the online travel company this morning suggest some investors are positioning for Expedia’s shares to recover from Friday’s post-earnings pullback. Shares in EXPE are currently up 0.80% to stand at $21.80 today, but the stock is down roughly 15.1% since the close of trading on Thursday. Two sizable stock and option combination plays caught our eye on Expedia this morning. One of the two appears to be a long-term bullish bet that the price of the underlying will rebound ahead of January 2012 expiration. It looks like investor established a delta neutral position, selling 124,000 shares in Expedia at $21.90 each, selling 4,000 puts at the January 2012 $15 strike for a premium of $0.625 per contract, and buying 2,000 calls up at the January 2012 $25 strike at a premium of $1.50 apiece, on a 0.62 delta. The transaction positions the investor to make money if shares in Expedia recover by next January.

CL - Colgate-Palmolive Co. – Demand for Colgate-Palmolive call options jumped at the end of the previous trading week, but it looks like investor appetite for bullish positions in the consumer products manufacturer has yet to be sated. Shares in the maker of products ranging from toothpaste to pet food are currently up 0.30% to stand at $79.16 as of 11:25am in New York. Options players speculating that shares in the name may climb substantially in the next six months traded more than 6,200 calls up at the August $90 strike on paltry previously existing open interest of just 260 contracts. The overwhelming majority of the calls appear to have been purchased for an average premium of $0.75 apiece. Call buyers stand ready to profit should Colgate’s shares surge 14.6% to exceed the average breakeven price of $90.75 by August expiration day. Shares in Colgate-Palmolive traded at an all-time high of $87.39 back on November 18, 2009, and have not exceeded $85.93 in the past 52-weeks.


Andrew Wilkinson

Senior Market Analyst

ibanalyst@interactivebrokers.com

Caitlin Duffy

Equity Options Analyst

 


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