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Bullish trade in Kemet following selloff

Is Kemet the proverbial baby thrown out with the bathwater?

Yesterday's activity on our Heat Seeker tracking program suggests that might be the case. A block of 2,000 March 12.50 calls was purchased for about $0.90 and an equal number of March 10 puts was sold for $1.90. Volume was more than 29 times open interest in both strikes.

The trade resulted in a credit of about $1 and will be highly leveraged to upside in the company, which makes electronic capacitors for a broad array of industries such as medicine, computers and alternate energy. It has a long history, and was a major supplier of vacuum-tube components during WWII.

KEM's last earnings report on July 27 was very strong, with profit and earnings both better than expected. Shares attempted to rally on the news, but were dragged lower by selling in the broader market. It also trades at about 4 times forward earnings and has a long-term price/earnings growth ratio of less than 0.50 times.

The stock rallied more than 4,000 percent off the 2009 lows, but then rolled over and proceeded to lose half its value since early May. It's now recovering, and closed up 7.81 percent at $9.53 yesterday.

Overall options volume in KEM was more than 20 times average in the session, according to 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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