Actionable trade ideas for stock market investors and traders seeking alpha by overlaying their portfolios with options, other derivatives, ETFs, and disciplined and applied Game Theory for hedge fund managers and other active fund managers worldwide. Ryan Renicker, CFA

1. October 13, 2006
Cablevision Option Strategies
Risk Arbitrage
Research We highlight three option strategies that allow investors to express various investment views on the
Evren Ergin proposed MBO for Cablevision. The current offer from the Dolan group is $27 per share. However,
1.212.526.9376 the $26.91 closing price of Cablevision shares on October 12, 2006 suggests that investors expect
eergin@lehman.com an improvement in offer terms.
Amit Dholakia
1.212.526.9377
adholaki@lehman.com We believe the fair breakeven probability for an improvement in deal terms to $30 is approximately
65%. The current implied probability of an improvement in deal terms, based on last night’s (10/12)
closing price, is about 77%. The options strategies we highlight are intended to offer investors a
Derivatives Strategy
potentially improved risk/reward (relative to a long-only position) that may also be more consistent with
Ryan Renicker, CFA
1.212.526.9425 various views on the announcement of a definitive transaction.
ryan.renicker@lehman.com
Devapriya Mallick Strategy I: Overwrite Long CVC position – Moderately Bullish
1.212.526.5429
dmallik@lehman.com
• Write Jan 07 27.5 Calls against long stock for $0.90.
• The implied breakeven probability of an improvement in deal terms for an overwrite strategy
is about 72%.
Strategy II: CVC Risk Reversals – Bearish View
• Buy CVC 25 puts and sell CVC 27.5 calls for a bearish risk reversal expiring in Jan. Net
premium from the transaction is $0.50.
• For this strategy, the implied breakeven probability of an improvement in deal terms is about
16%. However, this strategy is intended to express a bearish investment view that would
benefit if a definitive agreement is not reached, and would therefore be associated with a
low implied probability of an improvement in deal terms.
• If we consider the risk-reversal strategy in addition to a long stock position, the implied
breakeven probability is roughly 71%, which is in line with the other strategies we highlight.
Strategy III: CVC 1x2 Call Spreads – More Bullish
• Buy CVC Jan07 25-27.5 1x2 Call Spreads for $1.05 to add to long position.
• The long stock with a 1x2 call spread has an implied breakeven probability of an
improvement in deal terms of about 75%.
Lehman Brothers does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of
interest that could affect the objectivity of this report.
Customers of Lehman Brothers in the United States can receive independent, third-party research on the company or companies covered in this report, at no cost to them,
where such research is available. Customers can access this independent research at www.lehmanlive.com or can call 1-800-2LEHMAN to request a copy of this research.
Investors should consider this report as only a single factor in making their investment decision.
PLEASE SEE ANALYST(S) CERTIFICATION AND IMPORTANT DISCLOSURES BEGINNING ON PAGE 6.

2. Equity Derivatives Strategy | Cablevision Option Strategies
CVC Proposed MBO – Option Strategies
We highlight three option strategies that allow investors to express various investment views on the
proposed MBO for Cablevision. These strategies may present investors with a more favorable
risk/reward for a particular investment view relative to a long equity position. The current offer from the
Dolan group is $27 per share. However, the $26.91 closing price of Cablevision shares on October
12, 2006 suggests that investors expect an improvement in offer terms. In this report, we refer to
information and assumptions initially detailed in an earlier Lehman Brothers Risk Arbitrage Research
report1.
We present assumptions from that report that are relevant to the highlighted options strategies. We
also note that these option strategies are generally intended to express a view over the time frame until
negotiations between the Dolans and the Cablevision special committee reach a resolution (i.e. either
a definitive agreement is reached or negotiations are terminated).
Key Assumptions (please see our prior Risk Arbitrage report for complete
details)
Timing: based on limited precedents, negotiations in proposed MBO's generally take about three
months to reach a resolution.
Increase in Offer Terms: The current offer from the Dolan group is $27 per share. A $30 final offer
price appears achievable. However, there are reasonable risks (both to the upside and downside) in
estimating a final offer value.
Downside: We are assuming a downside price of $23.50 for Cablevision shares in the event that
negotiations are terminated without a definitive agreement.
Fair Spread in a Definitive Agreement: We estimate a fair annualized spread in a definitive
transaction for Cablevision to be roughly 14-15%.
Breakeven Probabilities
• According to the assessment of our Risk Arbitrage Research team, the fair breakeven
probability for an improvement in deal terms is approximately 65% based on the assumptions
above.
• The current implied probability of an improvement in deal terms, based on October 12,
2006 closing prices and the assumptions above, is about 77.1%.
• We highlight the current implied breakeven probabilities associated with an improvement in
deal terms, based on October 12, 2006 closing prices, for each of the three option
strategies we consider.
1
Please refer to Proposed MBO of Cablevision, October 10, 2006 for further details.
October 13, 2006 2

3. Equity Derivatives Strategy | Cablevision Option Strategies
Strategy I: Overwrite Long CVC position – Moderately Bullish
• Write Jan 07 27.5 Calls against long stock for $0.90.
• Breakeven if stock closes at or below $28.40 as of January 19.
• Arb investors can implement this as a buy-write to reduce the cost of entry into the stock,
especially if they want to own CVC shares following a potential definitive agreement.
• Short-dated implied vols have picked up since the vol crush immediately following deal
announcement. Selling upside calls helps monetize the higher volatility.
• The strategy benefits if a definitive agreement is reached before January. Based on limited
precedents, proposed MBOs take about three months to reach a resolution.
• A modest bump in deal terms could also be a positive for the position.
• One risk to overwriters would be the upside they would have to forego in the event of a
significant improvement in deal terms.
• In case a definitive agreement is not reached and CVC shares trade lower, buy-write
investors would be protected on the downside only to the extent of the premium received from
the written call ($0.90).
• The implied breakeven probability of an improvement in deal terms for an overwrite strategy
is about 72%.
Figure 1: Expiration Payoff for CVC Overwrite Strategy
6
Expiration Payoff from Call Overwrite
Underperform long-
4 Initial premium from only beyond $28.40
call = $0.90
2
0
-2
-4
-6
23
24
25
26
27
28
29
30
31
32
33
CVC Price at Jan Expiration
Source: Lehman Brothers, Bloomberg
October 13, 2006 3

4. Equity Derivatives Strategy | Cablevision Option Strategies
Strategy II: CVC Risk Reversals – Bearish View
• Buy CVC 25 puts and sell CVC 27.5 calls for a bearish risk reversal expiring in Jan. Net
premium from the transaction is $0.50.
• The long puts implement a more bearish view than the overwrite position alone. In the event
that no definitive agreement is reached, CVC may trade down to roughly $23-24 (pre-
announcement price was $23.53). A bearish risk reversal would benefit from such a pull-
back.
• Based on limited precedents, approximately 40% of proposed MBOs do not result in a
definitive agreement.
• The breakeven on the upside is $28, beyond which any improvement in deal terms exposes
the investor to unlimited downside risk. However, we would expect the stock price at expiry
to reflect a fair annualized spread to the final offer price.
• For this strategy, the implied breakeven probability of an improvement in deal terms is about
16%. However, this strategy is intended to express a bearish investment view that would
benefit if a definitive agreement is not reached, and would therefore be associated with a
low implied probability of an improvement in deal terms.
• If we consider the risk-reversal strategy in addition to a long stock position, the implied
breakeven probability is roughly 71%, which is in line with the other strategies we highlight.
Figure 2: Expiration Payoff for CVC January Risk Reversals
3
Expiration Payoff from Risk Reversa
Dow nside protection
2 below $25 Short upside
beyond $28
1
0
-1
-2
-3
23
24
25
26
27
28
29
30
CVC Price at Jan Expiration
Source: Lehman Brothers, Bloomberg
October 13, 2006 4

5. Equity Derivatives Strategy | Cablevision Option Strategies
Strategy III: CVC 1x2 Call Spreads – More Bullish
• Buy CVC Jan07 25-27.5 1x2 Call Spreads for $1.05 to add to long position.
• Allows leveraged upside participation to $27.50. Breakeven for the strategy (relative to a
long-only position) is $28.95, beyond which the trade begins to under-perform a long-only
position.
• This is a more bullish strategy than the overwrite and allows participation up to a higher
range of final offer prices (if a definitive agreement is reached).
• The long call position is currently in the money and the strategy would remain profitable even
if no definitive agreement is reached by the January expiration and stock price volatility
remains limited.
• This is a means of selling volatility in the January line, which could fall sharply from the current
17% level if a definitive agreement is reached.
• One risk to the strategy is that if no definitive agreement is reached, there is no protection to
the long stock position on the downside and the investor loses the net premium of $1.05.
• Earnings announcement in November could be another catalyst for stock price volatility,
though CVC does not tend to react strongly to earnings (the stock has moved about 2.5% on
average following the last eight earnings releases).
• The long stock with a 1x2 call spread has an implied breakeven probability of an
improvement in deal terms of about 75%.
Figure 3: Expiration Payoff for Jan 1x2 Call Spreads With Long Stock
6
Expiration Payoff for 1x2 Call Spreads
Leveraged upside
4
betw een 25-27.5
2
0
-2
-4 Exposure to dow nside
and $1.05 premium loss
-6
23
24
25
26
27
28
29
30
31
32
33
CVC Price at Jan Expiration
Source: Lehman Brothers, Bloomberg
October 13, 2006 5

6. Equity Derivatives Strategy | Cablevision Option Strategies
Analyst Certification:
We, Evren Ergin and Ryan Renicker, hereby certify (1) that the views expressed in this research email accurately reflect our personal views about any or all of the
subject securities or issuers referred to in this email and (2) no part of our compensation was, is or will be directly or indirectly related to the specific
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recommendations or views expressed in this research report.
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Mentioned Stocks
Cablevision Systems (CVC - USD26.86) 2-Equal weight / Neutral A/D/J/L
Risks Which May Impede the Achievement of the Price Target: The major risks to our S/T growth outlook is CVC's ability to roll out digital services in line with
expectations. DBS remains key competitive threat in the near term, while Verizon's fiber rollout is a significant long-term threat. Inconsistent strategy and non-core
investments have historically been a negative for the stock.
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October 13, 2006 6

7. Equity Derivatives Strategy | Cablevision Option Strategies
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8. Equity Derivatives Strategy | Cablevision Option Strategies
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October 13, 2006 8