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Call-Spread Selling in Virgin Media

At least one investor has sold call spreads, anticipating limited upside in the stock.
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) -- With

Virgin Media


scheduled to announce third-quarter earnings figures on Oct. 29 before the market opens, at least one investor sold call spreads and anticipates limited upside throughout the rest of the year.

Shortly after the opening bell sounded, the investor sold the in-the-money Jan. 12.5 call and bought the near-the-money Jan. 15 call to collect around $1.38 per spread with the stock trading around $14.58.

About 11,000 of these options have hit the tape so far today, trading in large blocks to indicate this was the work of one investor. The Jan. 12.5 calls are home to current open interest of 20,000 contracts, and the Jan. 15 calls were home to current open interest of 3,900 contracts heading into today's trading.

The Jan. 12.5 calls are currently trading up 17 cents on the day with a delta of 78, and the Jan. 15 calls have climbed 13 cents so far with a 50-delta.

The call spread seller could make a maximum profit of $1.38, which is the credit collected, and needs VMED shares to be trading below $12.50 at January expiration to keep this full premium. The maximum risk on this call spread is $1.13.

Analysts expect VMED to announce a 17-cent earnings-per-share loss on Oct. 29, which is a slight improvement from the 22-cent EPS loss the company reported in July. VMED shares are currently trading up 28 cents on the day.

The stock has seen a 279% rally since its March lows of around $3.90 per share. Following a steady run in VMED shares, at least one investor is calling for limited upside throughout the remainder of the year, forecasting that VMED shares will expire below $13.88 in January.

-- Written by Jud Pyle in Chicago

At the time of publication, Pyle did not have any positions in the equity mentioned. 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."