Cablevision soared 18 percent on Wednesday on speculation that it could be a takeover target. And one trader found a way to make a large amount of money on the name in a matter of hours.
The cable giant's stock rallied strongly after a flurry of acquisition activity in the industry. On Wednesday, it was reported Europe's Altice was in talks to buy Time Warner Cable on the same day it announced paying over $9 billion to acquire Suddenlink. Only two days before, Charter Communications moved ahead with its plans to purchase Bright House for $10.4 billion.
With excitement in the cable sector brewing, the markets looked to Cablevision as a potential acquisition target and investors began buying the stock vigorously. Along the way, one trader found a way to make a lot money in the stock's options in a very short amount of time.
Within the first hour of trading Wednesday morning, when the stock was trading around $22.60, the trader purchased 1,000 of the December 22-strike calls for $2.50 each. Since each contract controls 100 shares, the trader wagered $250,000 that the stock would trade above $24.50, or 8 percent higher, in the next seven months. A call is a bullish bet giving the purchaser the right to buy a stock at a set price within a given timeframe.
However, the trader didn't have to wait until December to receive a huge gift from the markets.
The stock steadily rose throughout the day and in the last hour of trading, the trader sold out of the December 22-strike calls for $3.80 each. Thus the trader made profit of $130,000, or 52 percent, in just 5 ½ hours.
According to options expert Dan Nathan, co-founder of RiskReversal.com, the trader was content to take profit rather than hold the position until expiration.
"This trader is obviously saying, 'You know what? I had a good entry here. I'm going to take my money on an 18 percent up day and move on,'" said Nathan, a CNBC contributor.
On Thursday morning, Cablevision's stock was down 2 percent to $24.15, or 45 below the option's break-even price.
Before Wednesday's spike, the cable company's stock was up 22.5 percent over the previous 12 months.