Shares of entertainment and communications name
Virgin Media Inc. (NASDAQ: VMED )
are underperforming the broad-market weakness so far on the day
without any notable news on the company. Call volume on the tape
this morning suggests at least one investor was willing to pay up
to bet that VMED will reach a new 52-week high during the next
At 11:16 a.m. EDT, a block of 5,000 September 22.5 calls changed
hands for 50 cents per contract. This price was the ask when the
volume hit the tape. Current open interest of these
out-of-the-money calls is 812 contracts, indicating the investor
most likely initiated this block to open on a bullish bet that VMED
shares could rally at least 9% during the near term.
The investor paid a total of $250,000, which represents the
maximum loss on this long call trade. This long call trade loses
money if the stock is still trading lower than the strike price at
expiration, but risk is limited to the premium paid. If the stock
climbs higher than the strike but is trading below the breakeven
level of $23 (strike price plus the premium paid), the investor
takes back some of the debit. Once the stock rallies higher than
$23, the investor could theoretically make unlimited profits to the
Remember, this long call trade not only bets on upside but could
also capitalize on a spike in volatility. If the price of the calls
appreciate with or without a significant move in the stock, the
investor could sell the options back and book profits instead of
holding them until Sept. 17.
VMED shares dropped 77 cents to $21.06 during morning trading.
The stock is trading roughly 6% lower than its 52-week high of
$22.45. It's interesting that the investor is not only betting on a
rally in the shares, but also expects VMED to hit a new 52-week
high during the next month.