Leveraged strategy targeting Viacom
David Russell | [email protected]
optionMONSTER's Heat Seeker monitoring system detected the purchase of 7,500 August 72.50 calls for $1.70 and the sale of 15,000 August 75 calls for $0.66. Volume was more than triple open interest at both strikes, indicating that new positions were initiated.
The strategy is known as a ratio spread because twice as many contracts were sold as the number bought. That generates additional income and reduces the cost basis. But it also creates a short position at the higher strike. (See our Education section)
Yesterday's trade cost just $0.38 and will earn a maximum profit of 558 percent on a move to $75. Above that level they will be forced to sell shares in the media company, so there is a good chance that he or she is already long the name.
VIAB fell 0.19 percent to $72.14 yesterday. It peaked just under $75 on an intraday basis earlier in the month before retreating, which could make some chart watchers think the stock won't go much above that level.
The ratio spread will leverage a move back to those highs. There is a good chance the investor owns shares and is using the strategy to program an exit from the position if it closes over $75. See our Education Section for more on how options can be used to manage positions.
Third-quarter earnings will also be released before the opening bell on Friday.
Total option volume was 19 times greater than average in the session, according to Heat Seeker. Calls outnumbered puts by more than 200 to 1.