Investor Sells Calls in CBS

The move suggests that the price of the option has not rallied as much as the delta would have suggested.
By Jud Pyle ,

CHICAGO (

TheStreet

) -- Investors looking to buy call options in

CBS

(CBS) - Get Report

have a plentiful supply Wednesday thanks to at least one call seller who boosted volume during midday trading.

By 1 p.m. EST, 6,500 way-out-of-the-money January 2011 17.5 calls crossed the tape with the stock currently trading up 51 cents to $13.66 per share. These options are home to current open interest of just 489 contracts, indicating investors traded these calls to open.

The calls have climbed just 10 cents on the day to 90 cents, which suggests the majority of this action occurred on the sell-side because the price of the option has not rallied as much as the delta would have suggested.

Investors who sold these calls are betting the stock could experience limited upside, and close lower than $18.40 at January 2011 options expiration. These calls have an implied volatility of 40, compared to a 30-day historical volatility of 30%.

Call selling activity such as this does not mean investors should run out and sell their CBS shares. After all, this could be an investor who is long the shares, and is merely selling these calls to create a covered call position. CBS is scheduled to announce earnings figures on Feb. 18 after the market closes.

Analysts expect earnings of 25 cents per share. However, CBS is likely seeing a little bit of strength today because its competitor

News Corp

(NWS) - Get Report

announced better- than-expected earnings.

-- Written by Jud Pyle in Chicago

Jud Pyle, CFA, is the chief investment strategist for Options News Network. Pyle started his career in finance in 1994 as a derivative analyst with SBC Warburg. After four years with Warburg, Pyle joined PEAK6 Investments, L.P., in 1998 as an equity options trader and as chief risk officer. A native of Minneapolis, Pyle received his bachelor's degree in economics and history from Colgate University in 1994. As a trader, Pyle traded on average over 5,000 contracts per day, and over 1.2 million contracts per year. He also built the stock group for all PEAK6 Investments, L.P. hedging, which currently trades on average over 5 million shares per day, and over 1 billion shares per year. Further, from 2004-06, he managed the trading and risk management for PEAK6 Investments L.P.'s lead market-maker operation on the former PCX exchange, which traded more than 10,000 contracts per day. Pyle is the "Mad About Options" resident expert. He is also a regular contributor to "Options Physics."

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