Kansas City Southern has been rallying along with other railroad stocks, and one trader is betting that it will keep on rolling.
optionMONSTER's Heat Seeker tracking system detected the purchase of 2,000 December 60 calls for $4 and the sale of an equal number of December 65 calls for $2. Volume was more than 9 times open interest in both strikes.
This bullish call spread cost $2 and will earn a maximum profit of 150 percent if KSU closes at or above $65 on expiration. That would represent a break above its record-high of $59.42 established last month.
KSU fell 2.52 percent to $56.57 on Friday but is up more than 60 percent since last summer. The industry is in the midst of a secular boom amid the rise of intermodal shipping--the use of containers that can be easily transferred from trains to trucks. It's also benefiting from a surge of commodity production and higher fuel prices, which is drawing traffic from the highways to rails.
The company's last earnings report on April 21 beat forecasts on the top and bottom lines, driven partially by strong demand from automakers. Management expects to add new customers in the next few years, especially as Asian companies relocate manufacturing to Mexico.
Overall option volume in KSU was 14 times greater than average in the session, with calls outnumbering puts by more than 130 to 1.
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