Markets

Bull shoots for summer highs in Zagg

A large trader is betting that Zagg will return to its recent highs.

optionMONSTER's Heat Seeker tracking system detected the purchase of 7,500 May 13 calls for $1.80 and the sale of 15,000 May 16 calls for $0.80. Volume was more than 100 times open interest in both strikes.

The trade cost $0.20 to open and will earn a maximum profit of 1,400 percent if the maker of iPhone accessories closes at $16 on expiration. That's roughly the same level where it hit resistance over the summer.

The gains will erode above $16 and turn to losses over $19. This type of call spread , also known as a ratio spread , the trade generates extra premium by selling twice as many calls than are bought. That increases leverage by reducing the cost but also leaves the investor naked short calls at the higher strike. (See our Education section)

ZAGG declined 5.5 percent to $11.52 yesterday but at one point was down 16 percent despite reporting strong quarterly results. The heavily shorted company, which makes protective shields for the iconic Apple phones, has been on a wild ride since mid-2010, when it traded below $3. (See our new researchLAB service)

ZAGG is also appears to be finding support at its 200-day moving average, which could be leading some chart watchers to believe that it's still in a bullish trend.

Overall option volume was 20 times greater than average, with calls outnumbering puts by more than 2 to 1, according to the Heat Seeker.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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