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Bulls Circle as Alcatel Lucent Runs Higher

By: Minyanville
Posted: 8/23/2013 2:50:00 PM
Referenced Stocks: ALU;CBOE;CHL;DNDN;GPS

Alcatel Lucent SA (ADR) ( ALU ) option traders have shown extreme favor toward long calls during the past week, per data from the International Securities Exchange (ISE) and Chicago Board Options Exchange ( CBOE ). Specifically, throughout the last five sessions, speculators have bought to open 7,371 calls on ALU, versus just 133 puts, resulting in a bullishly skewed call/put volume ratio of 55.42.

Broadening the scope reveals this preference for calls over puts has been status quo in ALU's options pits for some time. Including data from the NASDAQ OMX PHLX (PHLX) and expanding the time frame to 10 weeks results in a 50-day ISE/CBOE/PHLX call/put volume ratio of 15.82. This ratio ranks in the 64th percentile of its annual range, pointing to a healthier-than-usual appetite for calls over puts in recent months.

Not surprisingly, the equity's Schaeffer's put/call open interest ratio (SOIR) rests at 0.13, or in the 14th percentile of its annual range. Simply stated, ALU speculators are more call-heavy than usual among options expiring in three months or less. In the front-month series, this has translated into heavy accumulations of call open interest at the in-the-money September 2 and 2.50 strikes, where a respective 21,813 and 12,285 contracts currently reside.

There are a couple of plausible explanations as to why speculators have been more inclined to scoop up long calls over puts in ALU's options pits. For starters, with the stock presently trading at $2.76, the maximum potential reward for buying a put is limited.

Additionally, despite the stock's low perch, the equity has shown impressive strength on the charts in 2013, and has nearly doubled in value. What's more, the stock has outperformed the broader S&P 500 Index (INDEXSP:.INX) by more than 61 percentage points over the past 60 sessions. This upward momentum has brought the stock face-to-face with its 50-month moving average -- a trendline that has not allowed a monthly close north of it since June 2011.

In today's session, Alcatel Lucent has jumped 1.9% right out of the gate, after China Mobile ( CHL ) reported yesterday that it is awarding a number of contracts to European telecom firms, as it rolls out an expansive high-speed wireless project.

This article by Karee Venema was originally published on Schaeffer's Investment Research .

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