Option Investor

New Portfolio Position: CEDC "Bear-Call" Spread Projected Gain = $250

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CEDC - Central European Distribution $32.35

Central European Distribution Corporation (NASDAQ:CEDC) engages in importing and distribution of alcoholic beverages in Poland. Its products are divided into five categories: beers, spirits, wines, soft drinks, and cigars. Spirit products include international brands of scotch, single malt and other whiskeys, rums, bourbons, Polish vodkas, tequilas, gins, brandy, cognacs, vermouths, and specialty liquors. In addition to its distribution agreements with various alcoholic beverage suppliers, CEDC is the exclusive importer for Dunhill Cigars, General Cigar products, and Evian water. The company distributes its products throughout Poland via retail outlets and through wholesalers.

Here's a slightly more aggressive trade for readers who like to sell "premium" in volatility-related positions. The underlying issue has moved in a sizeable range during the past few sessions and the option prices suggest there may be some large gyrations in the coming week. While there is generally a fundamentals-related catalyst for big moves in a stock, our outlook is based strictly on "technicals" and traders who agree with neutral-to-bearish trend for CEDC in the near-term should consider this position.

Fundamentals Chart Earnings Dates Analyst Ratings

PLAY (speculative - bearish/credit spread):

BUY CALL JUN-40.00 CUV-FH OI=1828 ASK=$0.40
SELL CALL JUN-35.00 CUV-FG OI=867 BID=$0.90

POTENTIAL PROFIT (X 5 contracts @ $0.50) = $250
MARGIN REQUIREMENT (X 5 contracts) = $2250
COST BASIS = $35.50


This position will require some latitude to absorb the additional volatility in the underlying issue. Once the spread is open, traders should place a (contingent) order to close the short ($35.00) call options if the stock price moves above $35.50 on an intraday basis. A "net-debit" order of $1.10-$1.20 to exit the entire spread may also be appropriate for some portfolios. Future adjustments to this loss-limit/exit point will be posted in the MCM Newsletter.

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