TIVO – TiVo, Inc. – Shares of the provider of technology and services for TiVo® subscription-based digital video recorders shot up as much as 8.25% today to touch an intraday high of $8.26 on speculation DirecTV is considering a buyout. The rally in the price of the underlying stock and takeover chatter inspired bullish options activity on TIVO during the session. One long-term optimist purchased a plain-vanilla debit call spread to position for sharply higher shares by expiration in January 2011. The investor picked up 1,000 calls at the January 2011 $11 strike for a premium of $1.16 each, and sold the same number of calls at the higher January 2011 $17.5 strike for a premium of $0.34 apiece. The net cost of the bullish play amounts to $0.82 per contract. Therefore, the investor responsible for the spread is prepared to profit should shares of the underlying stock surge 43% from the today’s high of $8.26 to surpass the effective breakeven point on the spread at $11.82 by January 2011 expiration. The call spreader stands ready to amass maximum potential profits of $5.68 per contract if TiVo’s shares jump 111.8% to trade above $17.50 by expiration day.
Affiliation: Interactive Brokers
Andrew Wilkinson is the senior market analyst at Interactive Brokers Group, where he provides daily commentary and analysis on U.S. equity options trading throughout the trading day. Andrew provides webinars designed to explain option-related trading scenarios covering futures, fixed income, forex and equities.
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