Foster Wheeler (FWLT) LEAPS action calls for upside


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Less than one month before Foster Wheeler AG (NASDAQ: FWLT ) is scheduled to announce earnings figures, an investor appears to have taken a bullish stance on the construction company. The investor bought calls and sold puts to call for longer-term upside.

FWLT shares gained 72 cents, or more than 3%, to $22.29 today. The company did not announce any news on Thursday to account for the pop-up in the stock, but rather it was just along for the ride with the broader market rally. FWLT is due to announce earnings on Aug. 5 before the market opens. Analysts estimate earnings of 51 cents a share. Hefty call and put volume on the day suggests an investor was willing to commit a hefty amount of capital to call for upside in the stock during the long term.

By the close of Thursday's session, more than 9,500 out-of-the-money (OTM) January 2012 35 calls changed hands for an average price of $1.75 per contract. The calls are home to current open interest of 647 contracts. In addition, roughly 3,000 January 2012 12.5 puts crossed the tape for $1.15 per contract. The puts are home to current open interest of one contract. This options action suggests the investor bought the calls and sold the puts to open a bullish position betting that FWLT shares will be trading higher than $35 at January 2012 options expiration. The investor will take back the entire premium paid if FWLT shares are trading higher than $36.75 at expiration, and could theoretically turn unlimited profits to the upside if the price of the calls appreciates with or without a move in the stock. Implied volatility of the January 35 calls is 45% while the January 2012 12.5 puts are trading with an implied volatility of 55%. These implied volatility levels compare to the stock's 30-day historical volatility of 55%.

Foster Wheeler shares have dropped more than 25% in the past three months, from over $32 to just above $22. This option trader could be betting that with earnings season about to kick off soon, and FWLT's own results due out in early August, that the shares could be due for a rebound in short order.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing Options
Referenced Stocks: OTM

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Jud Pyle

Jud Pyle

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