Option volume surged more than 170-fold in Navistar yesterday as
one investor positioned for the stock to keep trucking higher.
Most of the activity occurred over a period of three minutes, when
existing positions in 7,073 January 45 calls and 1,250 January 50
calls were sold for $13.30 and $10.55 respectively. At the same
time, 17,223 January 60 calls were purchased for $5.98 and 9,250
January 75 calls were bought for $1.95.
The transaction, which resulted in a net cost of $1.38 million,
respresents an extremely bullish outlook for the company because it
more than tripled the number of contracts owned. However, because
they have higher strike prices, NAV must rally significantly for
the options to turn a profit.
The shares fell 0.21 percent to $53.50 yesterday but are up 11
percent since May 1, compared with an 8 percent drop for the
S&P 500 over the same period (purple line on chart). The maker
of trucks, buses, military vehicles, and engines ripped through
resistance at $50 in early May after announcing a new supply deal
with J.B. Hunt Transport Services. It received another order
from the Boyd Brothers Transportation later in the month, reported
a surprise profit on June 9, and was upgraded by UBS the next day.
NAV has held support above $50 while trading above its 50-, 100-,
and 200-day moving averages. The shares are also fighting to break
through the same $55 level where they traded immediately before the
October 2008 market crash. Some chart watchers may think the stock
is in an uptrend and expect a big move if it breaks out.
Calls accounted for more than 99 percent of total option volume in
the name yesterday, which reflects the broadly positive sentiment.
(Chart courtesy of tradeMONSTER)