By Jud Pyle, CFA, chief investment strategist for the Options News Network

The class B shares of

Viacom

(VIAB) - Get Report

are currently up over 8% today to $15.82. The shares are rallying after Barclays upgraded the company to overweight with a price target of $20. The company is set to report earnings in a little over a week, before the market opens on Feb. 12. This bullish sentiment from Barclays was met with some bullish call buying.

In the first 50 minutes of trade this morning, 20,000 of the Sept. 20 calls were purchased versus an open interest of just 17 according to the Sidewinder report at

www.onn.tv

. The calls were bought for $1.40 when the stock was around the $14.85 level.

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At first glance, this trade appears very bullish, and it probably is. However, a closer look shows that these options traded with stock, meaning that the call buyer simultaneously sold shares to the option market makers. A look at the time and sales in Viacom shows that 700,000 shares traded at $14.8572 around the time of the option trade. That is the number of shares that would need to be bought by the market makers to make this trade delta neutral.

So the fact that the investor did a delta neutral trade could mean that they are more interested in betting on volatility than direction. The price of $1.40 in the calls with stock at $14.85 is an implied volatility of 61. The historical volatility for the last 3 months is 83. So if this investor thinks that Viacom will remain that volatile, then purchasing options on an implied volatility of 61 will make money for the investor if they are hedged daily until expiration.

I think however that this trade is still bullish because I think that the investor has sold the stock to the option market makers to control the price jump in the stock caused by the market makers buying the stock in the open market. This way, the investor has managed to only purchase volatility from the market makers rather than delta.

This enables the investor to get a cheaper options price because the option market makers do not have to take stock price risk at the time of the option sale. This allows the investor to keep the purchase of the stock more anonymous. The investor may have bought the stock in the market prior to buying the calls. The investors hope is that the price that is paid for the shares will be less than what would be implied in the option price. The investor then sells the stock to the market makers and is left with the long calls.

The bull case for Viacom B shares is reasonable -- so I can see why an investor would want to try to own some calls for a rebound. The shares have declined from above $40 at the beginning of 2008 because of concerns surrounding advertising that is crushing other stocks like

News Corp.

(NWS) - Get Report

and

Time Warner

(TWX)

as well. But now at these levels the stock trades for below seven times earnings from the past 12 months. This investor could be betting that with any type of rebound in the economy, Viacom could have room to run.

Jud Pyle is the chief investment strategist for Options News Network and the portfolio manager of TheStreet.com Options Alerts. Click here for a free trial for Options Alerts. Mr. Pyle writes regularly about options investing for TheStreet.com.

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."