Long-term bullishness in EMC (NYSE: EMC)


Without any news today, shares of data storage devices name EMC Corp. (NYSE: EMC ) are relatively unchanged at $19.65 so far during afternoon trading. The stock is trading around its 52-week high of $20, and at least one investor bet that significant upside is yet to come by buying longer-dated calls.

At 1:09 p.m. EST, a block of 8,860 out-of-the-money ( OTM ) January 2012 22.5 calls changed hands for $1.80 per contract versus current open interest of just 1,700 contracts. This volume and open interest discrepancy indicates the investor most likely initiated these calls to open on a bet that EMC shares could climb higher than the breakeven price of $24.30 prior to January 2012 options expiration. Another reason we are quite certain that this is a buyer is because the options are actually higher by more than 10 cents on the day. The shares only rallied five cents, which demonstrates it was not just the stock price inflating the price of the calls. Implied volatility has risen as well; implied volatility of these 22.5 strike calls is now roughly 26%, compared to a realized volatility of just 23% for the last six months.

EMC has not breached the $22 mark since December 2007, but the call-buying action we saw today suggests at least one investor expects significant upside throughout the next two-year period. Keep in mind, however, if the options climb in the next few months prior to January 2012 options expiration, this investor could choose to sell back the calls and take profits if the calls appreciate (which does not necessarily occur only with a rise in stock).

You can open a free virtual trading account today and access tools that allow you to build profit and loss graphs of this and other stock and option trades for an accurate view of the risk/reward dynamics.

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

This article appears in: Investing , Options

Referenced Stocks: EMC , OTM

Jud Pyle

Jud Pyle

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