) has lost nearly 6% of its value in 2013, but option traders
placed a large bet Wednesday that this downtrend will soon reverse
course. During the course of the session, nearly 16,000 calls
traded at the June 24 strike, nearly all of which crossed at the
ask price. Open interest surged by 12,800 contracts overnight,
pointing to buy-to-open activity.
Digging in, more than half of this volume traded in one large
block, when a lot of 8,826 contracts was executed at the ask price
of $0.25, or a total value of nearly $221,000 for the block ($0.25
per option contract * 100 shares per contract * 8,826 contracts).
Panning out further, the volume-weighted average price for this
call yesterday was $0.26.
Looking ahead to expiration on June 21, these calls are a bet that
EMC will rally from its current price of
$23.80 to above breakeven of $24.26 (the strike price plus the
VWAP). For the call buyer who traded the aforementioned block, his
breakeven price at expiration is $24.25 (strike plus premium paid).
Delta on this call is currently 0.50, meaning the options market is
pricing in a 1-in-2 chance of an in-the-money finish.
These call buyers aren't the only ones
holding an optimistic outlook
toward EMC. Short-term options players have rarely been more
call-focused, as evidenced by the stock's Schaeffer's put/call open
interest ratio (SOIR) of 0.51, which is lower than 93% of all
similar readings taken over the past year.
Moreover, 22 of the 27 analysts following the IT concern rate it a
"buy" or better, even while the stock has underperformed the
S&P 500 Index
(INDEXSP:.INX) by 13 percentage points over the last two months.
Should they finally decide to downgrade the equity, it could spur
selling pressure in the shares.
On the charts, EMC recently notched an annual low of $21.45 and is
wedged beneath its 10-month moving average, which has acted as
resistance since last October.
Today, the July 25 call is in focus, with nearly 17,500 contracts
trading hands off the bid price. As volume outpaces open interest,
it is possible these out-of-the-money bets are being sold to open
as part of a
This article by Beth Gaston was originally published on
Schaeffer's Investment Research
Below, find some more great content from Schaeffer's Investment
Daily Game Plan - Bulls Remain in Control
$VIX and $SPX Moving Together - So What?
Speculators Eye Salesforce.com (
) Amid New High