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Short-Term Call Volume Ramps Up on Acme Packet

Speculators focus on APKT's weekly calls

by 1/3/2013 9:32 AM
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Acme Packet, Inc. (NASDAQ:APKT - 22.45) was hammered with bullish attention in the options pits yesterday, as roughly 11,000 calls changed hands -- more than quadruple the security's average single-session call volume. By comparison, just 2,700 puts were traded. Most popular was the 1/4 22.50-strike call, which saw nearly 4,400 contracts cross the tape at a volume-weighted average price (VWAP) of $0.70.

The majority of these near-the-money calls were exchanged at the ask price, implying they were purchased. Meanwhile, this strike saw an overnight rise in open interest of 2,329 contracts, signaling the initiation of new positions. In order for speculators to realize a profit from their bought-to-open calls, APKT must trek north of $23.20 (strike price plus the VWAP) by Friday's close, which is when these options expire. This represents expected upside of about 3% from Wednesday's closing price of $22.53. Should the stock fall short of this goal, however, the most these weekly call buyers stand to lose is the initial premium paid.

This penchant for bullish options over bearish is merely an extension of APKT's current trend, according to data pulled from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). In fact, the stock's 10-day call/put volume ratio stands at 6.06, indicating traders have bought to open more than 600 calls for every 100 puts during the last two weeks. This ratio ranks higher than 86% of other such readings taken within the past year, meaning speculators have been picking up calls over puts at a faster-than-usual clip.

Also of note, short interest on the network solutions provider jumped by nearly 9% during the last two reporting periods, and now accounts for more than 15% of APKT's available float. This suggests that some of the previously noted buy-to-open call volume could be the work of short sellers looking to hedge their bearish bets. Either way, it would take more than four days to cover these shorted shares, at the stock's average pace of trading.

APKT has been rather sluggish on the technical front, shedding more than 27% on a year-over-year basis. Still, the shares have recovered almost 70% since touching an annual low of $13.26 back in late July. What's more, the equity has outperformed the broader S&P 500 Index (SPX) by nearly 26 percentage points during the past 40 days. Should the stock maintain its current path higher, Wednesday's call buyers may find themselves collecting a profit on their bullish bets before week's end.


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