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VMware, Inc. (NYSE:VMW - 95.97) was the target of some bullish speculation yesterday, as more than 6,800 calls changed hands. This was triple the equity's average single-session call volume, and more than five times the number of puts traded. Most active proved to be the February 90 call, which saw nearly 2,100 contracts exchanged at a volume-weighted average price (VWAP) of $6.94.
Taking a close look at the data, it appears that the majority of these in-the-money calls crossed at the ask price, suggesting they were bought. Meanwhile, open interest rose by 2,028 contracts overnight, signaling that most of yesterday's volume was comprised of new positions. By purchasing the calls to open, speculators are betting on the stock to rise north of $96.94 (strike price plus the VWAP) by the close on Feb. 15, which is when these options expire. This marks a 2.2% increase over Wednesday's closing price of $94.87.
This uptick in call activity is hardly unusual for VMW. In fact, the equity's 10-day International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) call/put volume ratio checks in at 2.77, confirming calls bought to open have nearly tripled puts during the last two weeks. This ratio ranks higher than 80% of other such readings taken within the past year, meaning traders have been picking up calls over puts at a faster-than-usual pace.
However, it should also be noted that short interest on the software issue rose by more than 11% during the last two reporting periods, and now accounts for roughly 15% of VMW's available float. This implies that some of the aforementioned buy-to-open call volume could be attributable to short sellers looking to hedge their bearish bets. Either way, it would take close to eight days to buy back these shorted shares, at the stock's average daily trading volume.
Technically speaking, the shares have climbed nearly 8% on a year-over-year basis, and have outpaced the broader S&P 500 Index (SPX) by approximately 5 percentage points during the past three months. What's more, the stock is on pace to finish another week atop its 10-week moving average, which has served as support since late November.
At last check, VMW is up 1.2%, after receiving a price-target hike to $98 from $85 at Susquehanna ahead of the open.