Bullish trade on CBS


CBS has been moving sideways since October, and now one investor is making a lost-cost, low-risk bet it will rally by early next year.

CBS optionMONSTER's Heat Seeker tracking system detected the purchase of 6,600 January 17.50 calls for $0.35 and the sale of a matching number of January 10 calls for $0.475. The trade pushed total option volume in the media conglomerate to 11 times greater than average.

CBS fell 1.40 percent to $13.42 yesterday and has been trading on either side of $14 for the last 10 months. In early May it peaked $0.02 below $17 -- its highest price since immediately before the stock market collapsed in late 2008.

Monday's option strategy is apparently a bet the stock will return to the top end of the recent range. If it does, it will drive up the value of the calls owned and reduce the value of the puts sold short. The investor has unlimited potential profits if CBS rallies over $17.

He or she will suffer losses if it closes below $10 on expiration. Given the wide range before they either make or lose money, the strategy appears to be a low-risk bullish wager.

The trade appeared after the stock held the $13.30 level which has provided support since late May. Some chart watchers may think the shares are basing here and setting up for a push higher.

CBS reported better-than-expected second-quarter results on Aug. 3, fueled by a recovery in advertising revenue. The trend toward improvement in the industry has been seen in related companies including Time Warner and Interpublic Group.

(Chart courtesy of tradeMONSTER)

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

Copyright © 2010 OptionMonster® Holdings, Inc. All Rights Reserved.

This article appears in: Investing , Options

Referenced Stocks: CBS , IPG , TWX



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