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Calls were in heavy rotation on Deere & Company (NYSE:DE - 95.05) on Tuesday, with investors placing bets on some near-term upside. Of the roughly 23,000 calls that changed hands (more than three times the typical daily volume), 5,200 did so at DE's February 100 strike. A healthy portion of these contracts crossed at the ask price, implied volatility ticked 1.3 percentage points higher, and open interest rose overnight, pointing to buy-to-open activity.
By purchasing these out-of-the-money calls for a volume-weighted average price (VWAP) of $0.57, traders need DE to rise 5.8% to finish above breakeven at $100.57 (strike price plus VWAP) by the close on Friday, Feb. 15, when front-month options expire. At yesterday's close, delta for this call was perched at 20%, implying a 1-in-5 chance the position will finish in the money by expiration.
Tuesday's rush toward calls merely echoes the withstanding trend seen at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) in recent weeks. During the course of the last 10 sessions, traders have bought to open 10,526 calls, compared to just 3,718 puts. The resultant call/put volume ratio of 2.83 ranks in the 99th percentile of its annual range, implying bullish bets have been accumulated over bearish with more rapidity just 1% of the time within the past year.
Additionally, DE's Schaeffer's put/call open interest ratio (SOIR) of 0.74 ranks lower than 98% of other such readings taken over the last 52 weeks. Simply put, short-term speculators have rarely been more call-heavy toward the stock.
On the charts, DE has been stair-stepping its way higher over the last five months, with the stock up around 30% from its late August low of $73.14. What's more, the equity rallied to a new annual high of $95.30 right out of the gate today.
Should DE fail to maintain this upward momentum over the next two weeks, the most yesterday's call buyers have risked is the initial premium paid.