Traders think Cavium is ready to pop

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Cavium Networks has been trading above a key level, and yesterday the bulls stepped in.

optionMONSTER's Heat Seeker scanning system detected the purchase of 1,700 March 37 calls for $1.95. There was no open interest in the strike at the beginning of the day, which indicates that new positions were initiated.

Long calls lock in the price where investors can buy shares in the maker of networking chips. These options will generate some nice leverage in the event of a rally but will expire worthless if the stock doesn't move. (See our Education section)

CAVM rose 4.73 percent to $34.10 yesterday. It more than quadrupled between early 2009 and early 2011 but then rolled over and lost half its value.

Shares have been rebounding since the summer after some strong earnings reports and have stayed above their 200-day moving average. That could make some traders believe that the long-term uptrend will continue.

Volume of 3,600 contracts was more than 20 times greater than average in the session, according to optionMONSTER's data systems. Calls accounted for more than four-fifths of the total.

(A version of this post appeared on InsideOptions Pro yesterday.)




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.

Copyright © 2010 OptionMonster® Holdings, Inc. All Rights Reserved.


This article appears in: Investing , Options

Referenced Stocks: CAVM

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