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November 7, 2013  Thu 4:45 AM CT

CVC: SEE CHART GET CHAIN FIND STRATEGIES
Traders have gone from bearish to bullish in Cablevision Systems before the company's next earnings report on Friday.

On Tuesday, our Depth Charge lit up with activity in the December puts as investors braced for fresh lows this year. But yesterday CVC moved to Heat Seeker as money flowed into the November 17 calls.

Almost 9,300 contracts were purchased, mostly for $0.40 to $0.55. Volume exceeded previous open interest of 6,707 contracts, indicating that new money was put to work on the long side.

These long calls give investors the right to buy shares in the cable-television company for $17 through expiration, no matter how high they may trade during that period. They also stand to earn major leverage, with a 20 percent move in the stock tripling the value of the options. (See our Education section)

CVC fell 1.48 percent to $15.96 yesterday. It rallied in late June on speculation it would be acquired by Charter Communications and popped again following a strong earnings report on Aug. 2, but has bled lower since. The stock is now back to the same price range where it peaked in late 2012 and early this year, which could make some chart watchers think that support is in place.

Overall option volume was almost 3 times greater than average in the session, according to Heat Seeker. Calls accounted for a bullish three-quarters of the total.
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Education & Strategy

Sweet Spot Exceptions

As discussed last week, when using the Stock Replacement Strategy to replace a stock position to trade direction, we want to use an option that has very similar characteristics to the stock. We talked about using the deep in-the-money, 80 to 85 delta option that is similar in the Greeks and has relatively little extrinsic value which tends to work against us in stock directional trading.

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