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June 28, 2013  Fri 3:16 AM CT

CMCSK: SEE CHART GET CHAIN FIND STRATEGIES
One investor is positioning for a limited rebound in Comcast.

optionMONSTER's Heat Seeker monitoring program detected the purchase of 5,000 October 39 calls for $1.70 and the sale of 10,000 October 41 calls for $0.85. Volume was more than 50 times the previous open interest at each strike, indicating new activity.

The trade occurred in the special common shares (CMCSK), which are less liquid and have no voting rights than the more popular CMCSA. It cost nothing to open and will earn a maximum profit of $2 per contact, or $4 million, if the stock closes at $41 on expiration. Gains erode above that level because twice as many contracts were sold as the number bought.

Known as a ratio spread, the strategy is designed to take advantage of a limited move. Given the danger of being naked short calls, the transaction was probably done in conjunction with a long position in the stock.

The trader probably bought shares at a higher price and is now trying to repair that position. This way, he or she can earn more on a rebound while agreeing to sell shares if they reach $41. (See our Education section for more on how to manage risk with options.)

CMCSK rose 0.16 percent to $38.57 yesterday. The media stock doubled between October 2011 and May 2013 but has been skidding lower since. It appears to be stalling below its 100-day moving average, which could be leading some chart watchers to think that it's losing bullish momentum.

Total option volume was 28 times greater than average in the session, according to the Heat Seeker. Calls outnumbered puts by more than 1,000 to 1.
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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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