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What's behind call activity in Vodafone

David Russell (david.russell@optionmonster.com)

Vodafone has been a money machine for options traders, and they're coming back for more today.

Our Heat Seeker monitoring program detected the purchase of about 8,500 January 32 calls for $0.80 and the sale of a matching number of January 35 calls for $0.325. Volume was below open interest at the lower strike, so there are two possible explanations for the trade.

One is that the investor owns shares in the global telecom giant and had previously sold the 32s as part of a covered call strategy. Rolling the short position higher would have raised by $3 the level at which they must unload their stock. It cost them $0.475 to make the adjustment.

Alternately, both halves of the trade may have been opened. In that case, it was a bullish call spread with a potential profit of 532 percent on a move to $35 by early next year. Either way, they like the name and expect a push above $32 over in coming months. (See our Education section)

VOD is up 0.73 percent to $28.35 in morning trading. It fell to a 17-month low of $24.42 in late February but has rallied about 15 percent since as investors speculate the company will sell its stake in Verizon Wireless or potentially be acquired by other heavyweights such as AT&T and Verizon Communications.

Option trades have nailed the move. Heat Seeker detected unusual activity several times this year, the last of which resulted in profits of more than 400 percent by early last week.

More than 32,000 contracts have changed hands so far today, compared with 19,500 in a typical session. Calls outnumbered puts by more than 20 to 1.

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