Magic Software has had a long pullback, and one investor
apparently thinks that another rally is imminent.
optionMONSTER's Heat Seeker tracking system detected the purchase
of 1,800 August 5 calls for $0.05 and the sale of an equal number
of August 5 puts for $0.75. Volume was more than twice the open
interest in both strikes.
The resulting position is highly leveraged to the upside for the
maker of business software, whose net income surged 84 percent the
last time it reported earnings on Aug. 3.
MGIC has been on a wild ride, tripling between last November and
February, only to roll over and lose half its value as of
yesterday's close. It ended the session up 8.78 percent at $4.46.
The option trade generated a credit of $0.70 and will initially
make money from the short position in the puts losing value as MGIC
climbs. Above $5, the calls move in the money and start earning
profits as well.
The company's software allows big companies to run applications
across multiple environments, including mobile platforms. It now
seems to be reaching a size where profitability will improve
because revenues are growing faster than operating costs.
Overall option volume in MGIC was 20 times greater than average in
the session, according the to Heat Seeker.