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May 10, 2013  Fri 10:40 AM CT

TIVO: SEE CHART GET CHAIN FIND STRATEGIES
A large call strategy is looking for Tivo to rally.

More than 28,000 TIVO options have changed hands so far today, compared to the daily average of 5,200. Almost all of the action is one call spread.

optionMONSTER systems show that a trader bought 8,000 June 13 calls for the ask price of $0.86 and at the same time sold 16,000 June 15 calls for $0.37. This is clearly new activity, as volume at each strike is multiples of previous open interest.

The position is known as a ratio spread because of the different number of contracts at each leg. It cost the trader just $0.12, which is the risk if shares are below $13 at expiration.

The maximum gain in the trade would be realized with TIVO right at $15 at expiration. At that point the vertical portion of the spread would be at a maximum gain the and the additional short puts would expire worthless. (See our Education section)

TIVO is up fractionally this morning, trading at $11.98. The digital-video recording service hit a 52-week high of $13.49 at the end of January but tested support at $11 two weeks ago.
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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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