Options Trading News

October 15, 2012  Mon 12:21 PM CT

China Mobile has been working its way higher for months, and now the bulls are betting that the gains will accelerate.

optionMONSTER's Heat Seeker monitoring system detected the purchase of 2,500 December 57.50 calls for $0.65 and the sale of an equal number of December 50 puts for $0.40. Volume surpassed open interest at both strikes, indicating that new positions were initiated.

The trade cost $0.25 and is similar to owning shares in the Chinese telecom giant. It will make money to the upside because the calls will appreciate while the puts will lose value, and the opposite will happen if CHL declines. Unlike owning equity, however, it will track movements in the underlying less closely as time passes and expire worthless if the stock remains between the two strike prices.

CHL is up 0.26 percent to $54.42 in afternoon trading. It's up 12 percent since the start of 2012 and has been steadily following its 200-day moving average higher. Nonetheless, the shares are still within the same trading range that's held them in check since the Chinese bubble imploded four years ago.

Today's strategy positions the investor for a sharp move in the next two months for minimal cost. He or she apparently wants exposure in the event of a big move, but isn't willing to spend lots of money getting long. (See our Education section for more on how calls and puts can be used to generate leverage.)

Overall option volume is 5 times greater than average so far in the session.
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As I stated in last week's article, a break out or a break down needs to have a couple things happen before it is considered a confirmed break out or break down. The only problem is that in today's market where things move much more quicker than they did just a few years ago, two days could wind up being the majority of the expected movement, if not the whole movement.

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