A large trader is positioning for Time Warner Cable to take a breather.
optionMONSTER's tracking programs detected the sale of about 5,000 September 115 puts for $4.30 and 5,000 September 120 puts for $3.20. Volume was more than 6 times open interest at each strike, indicating that new positions were initiated.
The transaction resulted in a credit of $7.50, which the investor will keep as profit if the shares remain between $115 and $120 on expiration. Gains erode outside that range, turning to losses below $107.50 and over $127.50. Known as a short strangle , the trade is an example of how options can be used to make money from the passage of time rather than a directional move. (See our Education section for other market-neutral strategies.)
TWC fell 0.58 percent to $116.42 yesterday but is up 25 percent in the last two months. Most of that appreciation occurred in June on reports that the company might merge with Charter Communications. Earnings also beat expectations last Thursday, though revenue missed.
The stock touched an all-time high of $120.93 after the results and has been fluctuating since. That could make some chart watchers think that shares will now grind sideways in the intermediate term, helping to explain the short strangle.
Total option volume in the name was twice its daily average in the session.
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