Option Investor

Trade Alert - CEDC

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It's "Party Time" at CEDC!

Our speculative position in Central European Distribution (NASDAQ:CEDC) endured some unpleasant activity Thursday as shares of the stock rallied nearly 10% in conjunction with favorable news. Apparently, the Polish Treasury Ministry has decided to enter into negotiations with CEDC to sell 61% of the outstanding capital stock of Polmos Bialystok in a move to privatize the company. Polmos Bialystok is one of the country's largest vodka makers, thus it will certainly add to CEDC's bottom-line if a deal can be consummated and today the CEO expressed confidence that he would be able to effectively negotiate with the Polish Treasury Ministry and finalize the transaction.

Our suggested spread was bearish with cost basis near $35.50 and although the issue finished the regular session only a few cents above the sold (call) strike price, the stop-loss order was triggered about an hour before the closing bell. The cost to exit the short (JUN-$35 Call) position was roughly $1.60-$1.80 per contract, but the sale of the long (JUN-$40 Call) options should reduce this debit significantly. Based on today's bullish momentum, it would be prudent to wait for the upside activity to subside before executing the closing order. However, there is very little time value remaining in the June options, so be prepared to watch the market closely if you want the best price. Obviously, a "limit" order is really not appropriate due to the expected volatility in CEDC but if you are not able to monitor the stock during tomorrow's session, consider a target of $0.40-$0.60 to exit the remaining (JUN-$40) calls.

MCM Staff

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