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Bull looks to ride Apollo before earnings

By: optionMONSTER
Posted: 1/4/2012 3:14:00 AM
Referenced Stocks: APOL

One big investor likes Apollo Group before its earnings report tomorrow afternoon.

optionMONSTER's Heat Seeker tracking system detected the purchase of 5,000 May 60 calls for $2.45 and the sale of an equal number of May 40 puts for $1.31. Volume was more than 13 times open interest in both strikes.

The trade cost $1.14 and is similar to buying shares in the for-profit operator of colleges because it will profit from a rally and lose money from a decline. The main difference, however, is that it will track the underlying shares less closely as time passes , becoming worthless if APOL remains between $40 and $60 on expiration. (See our Education section)

The stock fell 1.37 percent to $53.13 yesterday and is up 38 percent in the last three months. It's been trending higher since late 2010 after a government crackdown on student loans squeezed the entire industry earlier that year.

APOL is now back to roughly the same level that served as resistance in September 2010 and again last July. Yesterday's bullish combination strategy suggests one big investor is looking for a breakout. There was also heavy buying in the January 55 calls for $1.66, but volume was below open interest.

The trading followed bullish activity in the name on Friday and bearish put buying on Wednesday .

More than 22,000 options contracts traded overall in the name yesterday. That's almost 14 times average, according to the Heat Seeker.