Stocks quoted in this article:
Last Friday, VMware, Inc. (NYSE:VMW) received a newly initiated "hold" rating from Cantor Fitzgerald, despite a solid three-month performance. Traders, meanwhile, rushed to make bets on the IT firm -- particularly on the call side, where volume was three times the norm. Of particular note was the October 87.50 call, which was the session's most actively traded option.
Open interest at the strike added over 2,300 contracts over the weekend, suggesting new positions were created. Since 84% of the transactions went off at the ask price, the trades were mostly of the buy-to-open sort. The volume-weighted average price (VWAP) for the VMW calls was $3.17.
In order for the speculators to profit, VMware must ascend from its current perch of $86.62 past $90.67 (strike price plus VWAP) by front-month options expiration. Gains will begin to accrue past that breakeven mark. At last check, delta on the call was 0.47, or 47%, meaning there's a nearly 1-in-2 chance it will move into the money during its lifetime. If instead the shares stay beneath the strike price, the traders will forfeit no more than the initial premium paid.
As noted earlier, VMware, Inc. (NYSE:VMW) boasts a solid three-month return, mostly thanks to a late-July, earnings-related bull gap. Yet, from a longer-term perspective, the stock has struggled -- down almost 8% year-to-date, and roughly 14% year-over-year. What's more, short interest makes up nearly 12% of VMW's available float, or more than six sessions' worth of pent-up buying power, at average trading volumes. All things considered, it's possible that some of this call buying activity was fueled by shorts hedging their bearish bets.
Option Briefs offer a concise look at recent notable trading activity. For more in-depth coverage of securities from an Expectational Analysisģ
perspective, please visit our Trading Floor Blog section.