Markets

L-3 draws bullish bet before earnings

The bulls are looking for a rally when L-3 Communications reports earnings next week.

optionMONSTER's Heat Seeker monitoring program detected the purchase of about 1,200 November 115 calls for $3.47 and the sale of an equal number of November 130 calls for $0.37. Volume was more than triple the previous open interest in each strike, which indicates that new positions were initiated.

Owning calls locks in the price where a stock can be bought. Selling them creates income in return for sacrificing gains above a certain level. Combining the two lets investors generate significant leverage from a given move--between $115 and $130, in today's case. That call spread will $15 if the top price is reached, profit of 383 percent based on their $3.10 entry price. (See the discussion of vertical spreads in our Education section)

LLL is up 1.99 percent to $112.34 in afternoon trading and has fluctuated between $100 and $125 all year. The defense contractor gapped down in late July after warning that its revenue had been overstated because of accounting irregularities. Four employees were fired, and management announced in October that it had completed an internal review of the incident.

The next set of quarterly results is due before the opening bell on Thursday, Oct. 30.

Total option volume in the name is 8 times greater than average so far today, with overall calls outnumbering puts by a bullish 32-to-1 ratio.

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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