Markets

NCR draws highly leveraged play

The bullish story has been building in NCR, and one investor is looking to cash in.

optionMONSTER's Heat Seeker tracking system detected the purchase of about 8,100 January 14 calls for $0.70 and the sale of a matching number of January 14 puts for about $1.10. Volume was more than 5 times open interest in both strikes.

The trader collected a credit of $0.40 and will profit immediately if the maker of ATMs pushes higher, enjoying huge leverage every penny it climbs. Conversely, the position will lose money on virtually any decline.

NCR

Using options let the trader synthetically create a position in 810,000 shares, which is more than half the average daily turnover.

NCR fell 0.58 percent to $13.63 yesterday and has been grinding sideways since the spring. It's been following its 200-day moving average higher (purple line on chart), which some traders may consider evidence of a bullish trend.

The company may be at a turning point, with its financials showing a dramatic improvement as new products open doors to growth. The last earnings report on Oct. 21 was better than expected, and management raised full-year guidance.

Although there were several unusual items, margins expanded and book value grew by more than $100 million on a sequential basis.

NCR is entering new markets with self-service checkout machines and is running Blockbuster Express DVD kiosks. The shares also trade for a modest 9 times forward earnings and the price-earnings growth ratio is less than 0.50 times.

Those metrics are important because the investor is employing so much leverage with the options. Such trades usually appear as value plays on underappreciated companies with strong fundamentals.

The transaction pushed total option volume in NCR to 44 times greater than average, according to the Heat Seeker.

(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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