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Alcatel Lucent SA (ADR) (NYSE:ALU) touched a then-two-year high of $3.62 yesterday, thanks to news of a potential tie-up with Nokia Corporation (ADR) (NYSE:NOK). In the options pits, ALU was targeted slightly more than usual, particularly on the call side, where roughly 14,000 contracts traded -- about 3,000 more than the norm. One of the most active strikes was the November 4 call, as speculators placed bets on additional upside for the wireless concern.
Over 3,600 contracts traded at the aforementioned strike, and most of those translated into open interest this morning, suggesting they were purchased. Since 93% of the trades crossed at the ask price, it's safe to say the majority of Wednesday's transactions were of the buy-to-open variety.
In particular, more than half of the volume on the call option transpired as a block trade of 2,000 contracts, purchased near the ask price at $0.24 apiece. In order for this bullish bettor to profit, Alcatel Lucent must muscle north of breakeven at $4.24 (the strike price plus the premium paid) by back-month options expiration. Additional gains will be had past that point. If the shares stall south of $4, however, the most the trader has at stake is his initial cash outlay.
This morning, Alcatel Lucent SA (ADR) (NYSE:ALU) shares have continued their ascent, seated $0.08 higher than yesterday's peak at $3.70. The options market, meanwhile, has gotten considerably more expensive of late. Since last Friday, the stock's 30-day, at-the-money implied volatility has jumped from 57.8% to 66.9% at present -- a 15.7% move.
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