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Bulls Bet on a New Year's Breakout for VMware Shares

Traders on Monday took a shine to January-dated VMW call options

by 12/18/2012 9:23 AM
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Call players descended on VMware, Inc. (NYSE:VMW - 94.24) on Monday, with 6,908 contracts crossing the tape -- more than doubling the tech stock's average daily volume. By contrast, only 2,211 puts were exchanged on VMW during the course of the session.

The most active option was the January 2013 90-strike call, where 4,452 contracts traded. The majority of these calls crossed closer to the ask price, and implied volatility ticked up to 33.4% by the close. Open interest at this back-month strike rose overnight by 1,362 contracts, confirming the addition of new calls here on Monday.

Traders bought to open those VMW January 90 calls at a volume-weighted average price (VWAP) of $5.81. Based on this cost of entry, a call buyer would need VMW to rise above breakeven at $95.81 before the close on Friday, Jan. 18, when these options are due to expire.

The shares settled Monday at $94.24, which means these freshly purchased calls already carry a healthy amount of intrinsic value. To hit the aforementioned breakeven level, VMW would need to rise just 1.7% in a little less than five weeks.

However, the stock's looming 40-week moving average could create some trouble over the near term. This trendline has rejected multiple rally attempts since June, and the $95 level is now emerging as an additional layer of resistance.

 Weekly Chart of VMW since February 2012 With 40-Week Moving Average


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