Strategy positions for CBS downside

By David Russell,

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CBS has rallied back to its highest level since early 2008, and one investor is hedging against a pullback.

optionMONSTER's Depth Charge tracking system detected the purchase of 2,000 June 23 puts for $1.30. Equal-sized blocks in the June 26 calls and the June 21 puts were sold at the same time for $0.90 and $0.40, respectively, which reduced the cost of the trade to zero.

The resulting position will earn a maximum profit of $2 if CBS closes at $21 on expiration. It was probably the work of a shareholder who wants to protect against a drop and is willing to be forced to exit their position for $26 if the media stock returns to that level.

CBS rose 0.35 percent to $24.40 in morning trading. It rallied more than 50 percent between late October and late March, when it peaked at $26.17, but has been drifting lower since.

The rally occurred as investors priced in a stronger advertising market. In addition to its namesake television and radio stations, CBS owns billboards and Simon & Shuster publishing. The next earnings report is scheduled for after the bell on May 3.

Shortly after the bearish three-way June trade, a block of 2,000 May 25 calls was sold for $0.90. Volume was below open interest, so it may have resulted from a bullish investor separately exiting a long position. Regardless, it bolsters the expectation that upside is limited over the near term.

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

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

This article appears in: Investing Options
Referenced Stocks: CBS

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