Bulls are tuning into Time Warner

David Russell (david.russell@optionmonster.com)
June 6, 2014

Someone apparently thinks that Time Warner is headed back to levels not seen in more than a decade.

optionMONSTER's Heat Seeker monitoring program detected the purchase of 4,200 October 65 calls for $6.90 to $7.05. Volume was almost 14 times the previous open interest in the strike, which indicates that new positions were initiated.

Long calls lock in the price where a stock can be purchased. Yesterday's contracts were deep in the money , effectively letting the investor chop the bottom $65 from the media company's share price and only play the upside. That kind of stock-replacement strategy can yield significant leverage on a percentage basis, in this case turning a 21 percent move into profit of 200 percent. (See our Education section)

TWX rose 0.52 percent to $70.88 yesterday. The shares have spent the last two weeks consolidating around their peak from last October and at one point yesterday touched $71.55--their highest point since March 2002.

Those October 65s are an ideal way to play for a breakout. Earnings have beaten estimates every quarter for at least the last three years, according to our researchLAB market-intelligence tool.

Total option volume was almost twice the daily average in TWX yesterday. Overall calls outnumbered puts by a bullish 9-to-1 ratio.

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