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Bullish traders descended upon TD Ameritrade Holding Corp. (NYSE:AMTD - 19.01) in droves yesterday, as roughly 49,000 calls crossed the tape during the course of the session -- a whopping 30 times the norm. On the other side of the trading fence, just over 300 puts were exchanged. Most active by a landslide was the August 23 call, where nearly 42,200 contracts changed hands -- 97% of them at the ask price, pointing to buyer-fueled volume.
Upon further examination, it appears that these out-of-the-money calls traded at a volume-weighted average price (VWAP) of $0.25. Meanwhile, open interest at this strike soared by 41,825 contracts overnight, signaling that a large portion of the volume was comprised of new positions. In order for speculators to secure a profit from these bought-to-open calls, AMTD must rally north of $23.25 (strike price plus the VWAP) by August expiration. This reflects a 22.3% premium to Thursday's closing price of $19.01, as well as territory not explored by the stock since September 2008.
This preference for calls versus puts is simply business as usual for the brokerage firm. AMTD's 10-day International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) call/put volume ratio checks in at 6.91, conveying calls bought to open have outstripped puts by a margin of nearly 7-to-1 during the past couple of weeks. This ratio is just 8 percentage points away from an annual peak, meaning traders have rarely purchased calls over puts at a faster pace during the last 12 months.
Technically speaking, AMTD has advanced about 13% so far this year, and outpaced the broader S&P 500 Index (SPX) by more than 10 percentage points during the past 60 sessions. However, after touching a year-to-date high of $20.30 on Feb. 19, the stock has retreated below its 10- and 20-day moving averages, which had previously acted as doubled-barreled support since mid-November. Also of note, the delta for the August 23 call sits at 0.14, meaning these options have a 14% chance of finishing in the money. Still, even if the stock fails to muscle north of $23, the most these bulls stand to lose is the initial premium paid.