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Emulex's Raised Guidance Bolsters Longer-Term Call Volume

Options players chase after ELX's longer-term calls

by 1/10/2012 1:15 PM
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Computer hardware concern Emulex (ELX - 8.49) offered an upwardly revised second-quarter earnings forecast yesterday, which prompted brokerage firm Pacific Crest to raise the equity to "sector perform" from "neutral" this morning. As such, ELX has seen a flurry of call activity today. More than 3,500 of these options have crossed the tape so far, reflecting an impressive 50 times the equity's expected intraday volume. Most of the action occurred at the July 8 strike, where just over 2,000 calls were exchanged -- all of them at the ask price, suggesting they were bought. This option currently holds open interest of just 35 contracts, pointing to a fresh batch of new positions.

This slant toward calls over puts appears to be the norm for ELX. The Schaeffer's put/call open interest ratio (SOIR) checks in at 0.95, indicating that calls outnumber puts among options set to expire within three months. This ratio ranks in the 18th percentile of its annual range, confirming that short-term options players have been more bullishly oriented toward the stock just 18% of the time during the past year.

However, short interest on ELX rose by 13.22% over the past two reporting periods, which may mean that some of the recent call volume could be attributed to shorts seeking to hedge their bets. Either way, these bearish plays make up 7.85% of the equity's float -- or more than six days' worth of pent-up buying demand.

Technically, ELX has gained close to 24% so far this month, but has underperformed the broader S&P 500 Index (SPX) by roughly 14% during the past 40 sessions. Today's price surge has pushed the stock past resistance at its 200-day moving average, a feat not accomplished since late March. At last check, the equity is up almost 15% to wink at the $8.49 level.


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