Why calls are surging in Time Warner

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Time Warner is seeing an unusual call strategy as shares hit a five-year high today.

optionMONSTER's Heat Seeker system shows that a trader sold 8,440 April 55 calls for the bid price of $2.68 against open interest of almost 10,000 contracts. At the same time, he or she bought 5,000 July 57.50 calls for $2.46 in volume far above that strike's open interest of 688, so that is a new position.

This overall trade could be a diagonal call spread, which is similar to a vertical spread but uses strikes in different months. But it is far more likely that the trader is rolling a position forward, selling the in-the-money April calls to take some money off the table while buying fewer of the out-of-the-money July calls. The investor will then stay in the trade with upside exposure for another three months at a strike that is $2.50 higher. (See our Education section)

TWX is down 0.65 percent to $56.89 today but is still not far from its $57.46 close on Friday, the highest since October 2007. Shares of the media and entertainment giant have been climbing since hitting their 52-week low around $34 in early June.  

More than 14,300 TWX options already traded today, compared to a daily average of 4,493. 

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