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NetApp's Decline Doesn't Deter Call Traders

NTAP speculators are picking up deep out-of-the-money calls

by 10/12/2012 12:28 PM
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Call traders are congregating around NetApp Inc. (NASDAQ:NTAP - 29.05) today, with speculators seemingly gambling on a significant rebound for the tech concern. Around midday, the equity has already seen roughly 11,000 calls cross the tape -- more than four times its average intraday call volume. For comparison, fewer than 400 NTAP puts have traded thus far.

Nearly all of the action has taken place at the out-of-the-money December 41 call, which saw a block of 9,750 contracts change hands at the ask price of $0.11, suggesting they were bought. Plus, implied volatility on the back-month call was last seen higher, hinting at newly opened positions. By purchasing the calls to open, the buyers are betting on NTAP to muscle north of $41.11 (strike plus premium paid) by December options expiration. This breakeven level represents expected upside of 42% from NTAP's current share price.

However, bullish bets are nothing new for NTAP. During the past two weeks, traders on the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) have bought to open nearly three NTAP calls for every put. In fact, the stock's 10-day call/put volume ratio of 2.54 ranks in the 75th percentile of its annual range, pointing to a healthier-than-usual appetite for long calls of late.

Garnering notable attention have been the November 30 and 31 strikes, which have each seen more than 4,500 calls opened in the past 10 sessions. Meanwhile, the deeper out-of-the-money November 35 strike has seen roughly 3,000 calls added in the same time frame. It's worth noting, though, that short interest edged 8.5% higher during the past month, and now accounts for 4.8% of NTAP's total available float. With call buying and short selling rising in tandem, it's possible that the growing affinity for out-of-the-money calls could be attributable to hedging activity among the shorts.

NTAP November Open Interest Changes by Strike

Technically speaking, it's not surprising to find short sellers upping the bearish ante. Since running into its 200-day moving average in September, the stock has shed about 20%, ushered lower beneath its 10-day moving average. Now, the equity is testing its footing in the $28-$29 neighborhood, which contained NTAP's pullbacks in mid-May and mid-July.

Fundamentally, the company yesterday named Jay Kidd and Jonathan Kissane its chief technology officer and chief strategy officer, respectively, though investors weren't too impressed, as the shares extended their recent retreat. Meanwhile, the firm is tentatively scheduled to step into the earnings confessional on Wednesday, Nov. 14.

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