Using PowerOptions tools to search for companies with unusual option activity last Friday revealed cable/Internet/telephone provider Charter Communications (NASDAQ:CHTR) and natural gas company Energy Transfer Equity (NYSE:ETE).
Charter Communications had significant activity for the 2012 Jun 60 call option as shown below:
The only news related to the company on Friday, was the completion of Hargray Communications acquisition of Charter's Beaufort cable system.
Charter's stock price has been on a nice run over the last ten months and is currently just off of its previous support in the $60 range as shown below:
Competitors so Charter Communications include Comcast (NASDAQ:CMCSA), Cox Communications (private) and Time Warner Cable (private).
A married put might be a good investment to consider for Charter Communications, as the married put strategy provides unlimited upside potential and limited downside. The married put strategy may be entered by purchasing a put option against a long stock.
Using PowerOptions tools, a married put position was found for December with a maximum potential loss of 9%. The specific put option to purchase is the 2012 Dec 65 at $10.10. A profit/loss graph for one contract of the December Charter married put is shown below:
If the price of the stock increases above the $65 strike price of the put option, income methods can be applied to the position as described by RadioActiveTrading.com.
Energy Transfer Equity
A significant amount of option volume was observed for Energy Transfer Equity related to the 2012 Jun 35 call option and the 2012 Jun 40 call option as shown below:
There wasn't any significant news regarding Energy Transfer Equity on Friday and the most recent news related to the company was the sale of its AmeriGas Partners propane business and its intent to acquire refiner Sunoco (NYSE:SUN).
Energy Transfer Equity's stock price is in the doldrums lately and is slightly off of its previous support in the $34 range as shown below:
Energy Transfer Equity's stock has a very nice dividend yield of 6.9%, so a protected covered call for September looks attractive, as the investment is positioned for realizing a potential return and also provides protection against a large drop in stock price. Assuming a $0.62 dividend payment in August, the protected covered call for September has a potential return of 4.4% and a maximum potential loss of 10.5%. The specific call option to sell is the 2012 Sep 35 at $2.25 and the put option to purchase is the 2012 Sep 30 at $1.05. A profit/loss (including the August dividend payment) graph for one contract of the protected covered call is shown below:
For a stock price below the $30 strike of the put option, the value of the protected covered call remains unchanged, even if the price of the stock goes to zero the maximum potential loss is 10.5%. If the price of the stock increases to around $40, the position can most likely be rolled in order to realize additional potential return.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.