Options Trading News

February 19, 2013  Tue 12:22 PM CT

Vodafone is down again today, and once again the bulls are stepping in.

optionMONSTER's tracking systems detected the purchase of 10,000 July 27 calls for $0.55. An equal number of July 23 puts was sold at the same time for $0.69.

The investor collected a small credit of $0.14, but the real money will be made to the upside. Should the global telecom rally, the calls owned will appreciate in value while the puts sold short will dwindle. If it fails to move, they'll keep the $0.14 and the position will expire worthless.

He or she is using the options to place a cheap bet on a rebound in the stock.  They can only lose money if it closes below $23 on expiration--a level it hasn't breached in more than two years. (See our Education section for more on how options can be more effective trading instruments than common equity.)

VOD fell 2.37 percent to $25.33 in afternoon trading after getting downgraded to "underweight" at Bernstein. The stock is now back to a price area that's been support since late 2010, which could make some chart watchers believe that it will hold its ground or rebound.

Buyers have already played this level, piling into calls several times last month in hope of a bounce. Some of them more than doubled their money in the trades.

That bullish combination trade has pushed total volume in VOD to twice the daily average so far today.

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The art of trading

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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