BMC Software has rallied despite weak results, and buyers
returned to the name last week.
optionMONSTER's tracking programs detected the purchase of 10,000
January 45 calls for $2.25 and the sale of an equal number of
January 50 calls for $0.60. Volume was more than triple open
interest at both strikes, indicating that this is a new position.
Owning calls gives the right to buy a stock at a certain level,
while selling them obligates a sale if the shares reach the strike
price. In the case of Friday's trade, known as a
bullish vertical spread
, the calls have locked in the right to buy BMC for $45 if it
closes at or above that level in mid-January. If it goes above $50,
the trader must exit for that price.
The net effect is that the trader spent $1.65 and will collect $5
if BMC is at or above $50 at expiration--about 15 percent over
Friday's closing price. However, this call spread will more than
triple in value from that move, which illustrates the kind of
leverage that can be achieved with options. (See our
BMC slipped 0.12 percent to $43.34 on Friday. The bullish option
trade was especially interesting given the weakness in other
enterprise-software companies recently. BMC's last earnings report
in July was bad as well, yet the stock quickly rebounded. Its next
set of numbers will probably be released later this month based on
last year's calendar.
Overall option volume in the company, the subject of sporadic
takeover speculation, was 19 times greater than average. Calls
outnumbered puts by 40 to 1.
(A version of this post appeared on
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