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July 2, 2013  Tue 11:10 AM CT

CVC: SEE CHART GET CHAIN FIND STRATEGIES
Takeover chatter has lifted Cablevision, and traders betting on more gains.

optionMONSTER's tracking programs detected two large transactions in the cable-television stock today. First, traders sold 5,000 August 16 puts for $0.30 in volume far above the previous open interest of just 159 contracts, clearly showing that this is a new position.

The put seller is now on the hook to buy CVC shares for $16 if they're below that level on expiration. But above $16 he or she will keep the $0.30 premium as the puts expire worthless. (See our Education section for more on the strategy, which makes money from the passage of time rather than a directional move.)

More option paper hit barely an hour later as traders gobbled up 7,300 August 19 calls, mostly for  $1. Volume was more than 14 times previous positioning, indicating that new positions were implemented. Those long calls lock in the price where shares can be purchased, giving them potentially significant leverage to a rally.

CVC is up 1.52 percent to $18.72 in early afternoon trading and has gained 25 percent in the last week. Most of that surge was trigged by a Bloomberg report that Charter Communications was considering a takeover of the company.

Total option volume is more than quadruple the daily average so far in the session.
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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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