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Call Players Chase After Coinstar, Inc. (CSTR)

One speculator employs a longer-term bull call spread on CSTR

by 3/12/2013 2:34 PM
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Coinstar, Inc. (NASDAQ:CSTR - 56.88) has climbed 3.7% today, a move that hasn't gone unnoticed by bullish speculators. Roughly 21,000 calls have changed hands so far, which is more than triple the equity's expected intraday call volume, and over eight times the number of puts traded. Upon closer inspection of the data, it appears that one strategist is using July-dated calls to construct a bull call spread on CSTR.

Specifically, a block of 6,291 calls was purchased at the July 57.50 strike for $3 each, while an equal number of calls was sold at the July 65 strike for $0.90 apiece -- resulting in a net debit of $2.10 per pair of contracts. In other words, the trader is hoping CSTR will finish at or above $65 by July expiration, but not so far that he would have been better off simply purchasing a run-of-the-mill call on the stock. His maximum profit is limited to $5.40 (difference between the strike prices, minus the net debit), while his potential loss is capped at the net debit paid.

However, in the short-term options pits, CSTR puts are more popular than usual. The equity's Schaeffer's put/call open interest ratio (SOIR) of 0.93 ranks higher than 76% of comparable readings collected over the last 12 months. In other words, near-term options players are more bearishly biased toward the stock than usual. Still, from a contrarian perspective, this heavy accumulation of put open interest could translate into options-related support down the road.

From a technical perspective, the automated kiosk provider has gained about 9% year-to-date, while besting the broader S&P 500 Index (SPX) by close to 9 percentage points during the past two months. Furthermore, CSTR is on pace to finish the week atop its 50-week moving average -- a feat not accomplished since July 2012.


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