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Call trading surged in Time Warner Cable Inc's (NYSE:TWC) options pits yesterday, as 8,774 of the bullishly skewed contracts changed hands -- more than four times the average daily volume, and 16 times the number of puts. The majority of the speculators targeted back-month options, and in particular, the October 120 call, where nearly 5,600 contracts traded, including a block of over 2,200.
Since open interest increased overnight, it's safe to say new positions were initiated. More specific yet, with 95% of the TWC calls going off at the ask price, we can assume a large percentage of the volume was of the buy-to-open variety -- an assumption confirmed by data at the International Securities Exchange (ISE).
The volume-weighted average price (VWAP) for the TWC calls was $1.30. Therefore, for yesterday's bulls to profit, they need the underlying shares to advance from their current position at $107.99, to $121.30 (strike price plus VWAP), by back-month options expiration. In other words, the stock needs to gain upwards of 12% over the next seven weeks for the investors to profit from their transactions. If Time Warner Cable Inc (NYSE:TWC) falls short of the strike price, however, the maximum potential loss is the premium paid.
TWC was last seen trading above $120 in early August, before being pressured lower by its 10-day moving average, amid discontentment surrounding its programming dispute with CBS Corporation (NYSE:CBS). According to the option's delta of 0.21, or 21%, the position has roughly a 1-in-5 chance of moving in the money by the closing bell on Oct. 18.