Stocks quoted in this article:
Alcatel Lucent SA (ADR) (NYSE:ALU) continues to surge on the charts after yesterday's big deal with Telefonica S.A. (ADR) (NYSE:TEF). Simultaneously, in the options pits, calls remain popular. So far today, roughly 19,000 contracts have traded, compared to an expected intraday volume of 4,339, as speculators anticipate additional upside for the networking name.
Most of the attention centers around two strikes, driven by a few sizeable block trades. Of particular note, just after the opening bell, a single trader bought 3,882 October 3 calls and 5,000 January 2014 3.50-strike calls near their respective ask prices of $0.39 and $0.34. At both strikes, volume outstrips open interest, and implied volatility is rising, suggesting the two lots were purchased. Information from Trade-Alert confirms the same.
Therefore, in order for the trader to profit in the near term, the shares of Alcatel Lucent need to advance from their perch of $3.16 past $3.39 -- the in-the-money strike price, plus the premium paid for each back-month option -- by Oct. 18. For the out-of-the-money call, the stock must exceed $3.84 by January options expiration. If ALU falls or stalls beneath the strikes, however, the most the trader has at stake is the initial cash outlay.
Today's headline-grabbing bettor wasn't the only aggressive bull. In fact, roughly 45 minutes after the two aforementioned lots traded, another investor appears to have bought to open 1,000-contract blocks at the same strikes, as both transactions occurred on the ask side.
What bodes well for both traders is the fact that Alcatel Lucent SA (ADR) (NYSE:ALU) has displayed remarkable long-term strength. Year-to-date, the shares are up over 127%, and year-over-year, they're up almost 185%. What's more, on a relative-strength basis, the stock has outperformed the broader S&P 500 Index (SPX) by about 72 percentage points during the most recent three-month time period.
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