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Alcatel Lucent SA (ADR) (NYSE:ALU) has staged a strong rebound since bottoming out at a year-to-date low of $1.27 on April 3, with the shares up nearly 46%. This upward momentum was highlighted in today's session, with the stock tagging a fresh 52-week peak of $1.86. Not surprisingly, calls have easily emerged as the options of choice. Almost 2,800 calls have changed hands thus far, compared to just over 200 puts.
Longer-term option traders are betting on a deeper trek into annual high territory, targeting a move north of $2. Nearly all of the 1,000-plus contracts respectively traded at the December 2 and January 2014 2-strike calls have done so at the ask price, and implied volatility at each out-of-the-money option was last seen higher, pointing to buy-to-open activity.
The volume-weighted average price (VWAP) for the December 2 calls is $0.30, meaning traders will profit with each step north of $2.30 (strike plus VWAP) ALU takes through the close on Dec. 20. The VWAP for the further-dated January 2014 2-strike calls is $0.35, making breakeven $2.35, or 27% above the equity's current perch at $1.85. Risk for both sets of call players is limited to the initial cash outlay.
Considering Alcatel Lucent's 32% year-to-date advance, as well as its modest stock price, it's not surprising that option traders have shown a preference for calls over puts in recent weeks. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), traders have bought to open 12,388 calls throughout the past 20 sessions, compared to 2,417 puts, resulting in a call/put volume ratio of 5.13.
It's more of a mixed bag outside of the options pits, though. While short interest accounts for a minute 0.4% of the stock's available float, the brokerage bunch has shown signs of skepticism toward the equity. Of the covering analysts, five out of eight maintain a "hold" or worse recommendation toward Alcatel Lucent, and the consensus 12-month price target of $1.74 represents a discount to present trading levels.
If Alcatel Lucent SA (ADR) (NYSE:ALU) continues in its upward trajectory, a round of upgrades and/or price-target hikes could provide contrarian fuel to the fire. Just yesterday, UBS raised its price target for the equity on an optimistic outlook for the company's IP routing arm.