Stocks quoted in this article:
The shares of Dell Inc. (NASDAQ:DELL - 9.43) have struggled on the charts in 2012, surrendering more than 35%. In fact, the security touched a fresh three-year low of $9.11 just last week. Nevertheless, it appears a few options traders are expecting the tech stock to stage a rebound, as evidenced by the recent fondness for call options.
During the past couple of weeks, traders have bought to open more than two DELL calls for every put on the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). What's more, the security's 10-day call/put volume ratio of 2.44 stands higher than 84% of all other readings of the past year, suggesting option buyers have initiated bullish bets over bearish at a quicker-than-usual step recently.
As a result, the equity's Schaeffer's put/call open interest ratio (SOIR) now rests at 0.85, indicating that calls outnumber puts among options expiring within three months. Furthermore, this ratio registers in the 26th percentile of its annual range, implying that near-term options players are more call-heavy than usual right now.
Echoing that trend, DELL has seen roughly 22,000 calls cross the tape so far today -- more than double the number of puts traded, and close to three times its average intraday call volume. Most notably, a block of 6,500 calls changed hands at the out-of-the-money January 2015 12 strike. The contracts traded at the ask price of $1.02, and with just 160 contracts open at the LEAPS strike, we can assume the trader bought the calls to open.
By doing so, the investor is expecting DELL to reclaim a perch atop the $12 level within the next couple of years. Specifically, the buyer will profit if the stock topples the $13.02 level (strike plus premium paid) by January 2015 options expiration. However, even if the shares remain in single-digit territory, the most the buyer stands to lose is limited to the initial premium paid for the calls.
In order to take out the $12 level, the shares of DELL would have to muscle north of their 10-week and 20-week moving averages -- a trendline duo that's ushered the stock lower since March. However, the company is slated to step into the earnings confessional one week from today, suggesting the aforementioned call buyer could be betting on a significant breakout to the upside.
At last check, DELL has added 2.6% to explore the $9.43 vicinity.