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Option Bulls Blitz OpenTable

OPEN traders are scooping up out-of-the-money calls

by 10/22/2012 1:58 PM
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Option traders are targeting OpenTable Inc (NASDAQ:OPEN - 45.40) with a vengeance this afternoon -- especially on the call side of the tape. At last check, the online reservation concern has seen roughly 5,800 calls change hands -- about 10 times its average intraday call volume, and nearly five times the number of OPEN puts traded.

Garnering notable attention have been the way out-of-the-money January 85- and 90-strike calls, which have seen about 1,800 and 2,650 contracts cross the tape, respectively. All of the calls have traded at the ask price, and implied volatility was seen higher at both strikes, hinting at buy-to-open activity.

By purchasing the calls to open, the buyers are expecting OPEN to skyrocket significantly within the next couple of months. More specifically, the volume-weighted average price (VWAP) of the 85-strike calls is $0.10, meaning the buyers will profit if OPEN topples the $85.10 level (strike plus VWAP) -- implying expected upside of 88% to the stock's current perch. Meanwhile, the VWAP of the 90-strike calls is also $0.10, indicating a breakeven level of $90.10 -- nearly twice OPEN's current share price.

However, there is a method to the call buyers' madness. According to Reuters, Yahoo! Inc (NASDAQ:YHOO) is showing apparent interest in OPEN and a couple of other firms, with new CEO Marissa Mayer leaning toward "an ambitious, technology-driven comeback plan." Against this backdrop, the out-of-the-money call purchases could be bets on a hefty buyout bid for OPEN.

On the other hand, short interest accounts for a hefty 48.2% of OPEN's total available float. In fact, at the equity's average daily trading volume, it would take nearly 13 sessions to buy back all of these bearish bets. As such, it's possible that today's affinity for out-of-the-money calls could be attributable to hedging activity among the shorts.

In afternoon action, OPEN has bucked the broad-market trend lower, adding 4.2% to flirt with the $45.40 level. Earlier in the session, the stock peaked at $46.98 -- in territory not charted since mid-September.


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