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General Cable faces range-bound trade

By: optionMONSTER
Posted: 11/3/2011 1:12:00 PM
Referenced Stocks: BGC

General Cable has been volatile this week, but someone thinks it will stop moving soon.

optionMONSTER's monitoring programs detected the sale of about 3,000 contracts each in the January 21 puts and the January 27 calls. The puts fetched $1 and the calls brought in $2.05, yielding a total credit of approximately $3.05. There was barely any open interest in either strike when the trade occurred.

The strategy is known as a strangle, and is designed to profit from BGC moving sideways rather than rallying or dropping. The investor will keep that $3.05 credit if shares remain between $21 and $27 on expiration. Outside of that range the profits will diminish and eventually turn to losses. See our Education Section for more.

BGC is up $5.63 percent to $25.89 in midday trading but has lost more than one-quarter of its value in the last three weeks. The company, which makes a wide range of electrical cables, issued results on Monday afternoon that were significantly worse than expected. Management also cut guidance, citing weak demand and high costs, and shares gapped lower on the news.

Given that recent drop, some chart watchers may believe that it will take a while before BGC rallies. But it's bounced at a long-term support level running back to early 2009, which could also make traders think that downside is limited. Those technical considerations may help explain the reasoning behind today's short strangle.

Overall option volume in BGC is 22 times greater than average so far today.