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EMC Corporation (NYSE:EMC) options traders were busy yesterday. Total volume finished at about 29,000 contracts -- two times the norm -- with 23,000 changing hands on the call side of the fence. Most active by a mile was the November 26 strike, where 15,361 contracts traded, almost entirely at the ask price.
Looking more closely, the lion's share of the volume at the back-month strike traded in a block of 12,000 contracts, just after noon. The lot crossed at the ask price, and open interest jumped by roughly 14,700 positions overnight, suggesting the calls were purchased to open for $0.31 per contract. Therefore, in order to profit, yesterday's speculator needs EMC to advance past $26.31 (strike price plus premium paid) before the closing bell sounds on Nov. 15, when the options expire.
At last check, delta stood at 0.21, or 21%, meaning there's approximately a 1-in-5 chance the option will move into the money during its lifetime. However, if EMC fails to surmount the strike price during its lifetime, Wednesday's big call buyer can rest easy knowing that he would only lose 100% of his initial cash outlay.
From a technical perspective, EMC is a long-term laggard. Year-over-year, the shares are off about 4% to $24.57. Even yesterday, despite the significant broad-market upturn, the IT stock gained less than 1%, after getting hit with an early morning downgrade. Still, the call buying may stem from the fact that EMC Corporation (NYSE:EMC) is scheduled to report third-quarter earnings before the market opens next Tuesday, Oct. 22. Historically speaking, the stock has matched or exceeded its per-share, bottom-line estimate in six of the past eight quarters, with an average gain of 2.1% the following week.
Of course, based on the aforementioned technical weakness, it's also possible that Wednesday's out-of-the-money call buying was fueled by short sellers seeking near-term upside protection. The short-interest ratio for EMC currently stands at 3.8 days to cover.
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