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Higher leverage in Compellent play

Compellent Technologies is ripping higher on a strong earnings report, and one investor is adjusting a position to increase leverage.

The maker of network storage devices reported profit that was more than triple what analysts had forecast, and management predicted strong results for the last quarter of the year. The stock gapped higher at the open and is now up 20.81 percent to $23.80 in morning trading. It has rallied 93 percent in the last three months as investors clamor for exposure to the fast-growing cloud-computing segment.

CML

Most of the option activity resulted from a call roll that increased the trader's gamma, meaning their position will now gain value at an accelerating pace the higher CML climbs. (See our Education section)

An existing position in about 2,100 January 20 calls was closed at an average premium of $5.35, and a new position was opened in 3,000 January 30 calls for $1.245.

Not only did the gamma go up to 4.6 from 3.8, but the investor also increased the number of contracts they own. Both the moves will result in greater leverage.

The trader also collected a credit of $750,000 and will therefore be able to take money off the table while making the position more sensitive to gains in the stock price.

Other traders bet that the gains will be limited over the shorter term by selling about 1,100 November 30 calls for $0.45 to $0.60.

Overall option volume in CML is 9 times greater than average so far today, with calls accounting for 84 percent of the activity.

(Chart courtesy of tradeMONSTER)

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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