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OpenTable Traders Buy Pre-Earnings Call Options

OPEN's out-of-the-money calls are picking up steam

by 11/1/2012 2:38 PM
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Option traders have honed in on OpenTable Inc (NASDAQ:OPEN - 46.99) this afternoon, especially on the call side of the aisle. At last look, the online maitre d' has seen around 3,800 calls change hands -- more than six times its average intraday call volume, and about five times the number of OPEN puts traded.

Most of the action has centered around the out-of-the-money November 55 call, which has seen close to 2,900 contracts cross the tape on open interest of fewer than 850 contracts, hinting at an influx of new positions. What's more, 93% of the front-month calls traded at the ask price, suggesting they were bought.

By purchasing the calls to open, the buyers have one of two motives: to hedge a bearish position, or to profit from a significant pop after tonight's earnings release. In the case of the former -- which are in abundance, considering short interest accounts for nearly 49% of the stock's total available float -- their primary goal is for OPEN to blaze a path lower. However, the calls lock in an acceptable purchase price for the stock, should OPEN skyrocket north of $55 in the short term.

In the case of the latter, the bulls need OPEN to rally north of $55 within the next couple of weeks. Specifically, they'll reap a reward if the stock surmounts the $55.63 level (strike plus volume-weighted average price of $0.63) by options expiration. Nevertheless, should OPEN remain south of this level -- which hasn't been touched in more than a year -- the most the buyers stand to lose is capped at the initial premium paid for the calls.

Technically speaking, OPEN has tacked on roughly 40% since skimming the $33 level in early August, led higher atop its 10-week and 20-week moving averages. However, the security is now struggling to barrel through the $46-$48 neighborhood, which has rejected OPEN's advances since March.

Historically, the company has topped Wall Street's bottom-line earnings estimates in each of the past four quarters, Thomson Reuters reports, which could be a catalyst behind today's call buying -- whether "vanilla" or hedge-related.


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