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September 21, 2012  Fri 12:20 PM CT

TEF: SEE CHART GET CHAIN FIND STRATEGIES
One investor apparently believest that Telefonica will continue to ring up higher prices.

optionMONSTER's Heat Seeker tracking program detected a bullish combination trade in the Spanish telecom, which has broad exposure across Latin America. A block of 2,500 October 14 puts was sold for $0.20 and an equal number of October 15 calls was purchased for $0.35.

There are three benefits to the strategy. First, it cost just $0.15. Secondly, it will let the investor benefit from a quick rally in the share price while saving them the trouble of buying 250,000 shares on the open market (roughly one-tenth of TEF's average daily volume).

Third, it programs a purchase order for $14 if the stock closes below that level on expiration. If it remains in its current range, the entire position will expire worthless. The main risk is to the downside because they'll lose money in the event of a big drop. (See our Education section for more on selling puts and buying calls.)

TEF is up 1.45 percent to $14.66 this afternoon and 12 percent in the last month. The stock fell to an eight-year low over the summer amid worries about Spain's sovereign debt and negative sentiment toward emerging markets, but confidence has improved since then.

There was also a similar bullish transaction in Brazilian drinks company Ambev earlier in the session.

Overall option volume in TEF is quadruple the daily average in the name so far today, according to the Heat Seeker.
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