Emulex Corporation (ELX) Call Volume Hits Fever Pitch

Emulex Corporation (ELX) calls are crossing the tape at 36 times the average intraday pace

by Karee Venema

Published on Jan 13, 2015 at 2:42 PM
Updated on Apr 20, 2015 at 5:32 PM

Unlike fellow storage device specialist SanDisk Corporation (NASDAQ:SNDK), Emulex Corporation (NYSE:ELX) is soaring in the wake of its updated guidance. Specifically, the stock is up 20.9% at $7.01, after ELX forecast better-than-expected fiscal second-quarter results. Options traders are responding in kind, scooping up calls at a rate 36 times the average intraday pace.

According to data from the International Securities Exchange (ISE), buy-to-open activity has been detected at ELX's January 2015 6-strike call -- the equity's most active option. Based on present trading levels, these calls are not only in the money, but the stock is lingering near the at-expiration breakeven mark of $7.01 (strike plus the volume-weighted average price of $1.01). Profit will accrue north of here, while losses are limited to the initial premium paid, should ELX settle the week -- when front-month options expire -- south of the strike price.

Widening the sentiment scope reveals option bulls have been active on ELX in recent months. In fact, the stock's 50-day ISE, Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) call/put volume ratio of 85.97 ranks just 4 percentage points from an annual bullish peak. With nearly 10% of the equity's float sold short -- representing more than two weeks' worth of pent-up buying demand, at average daily trading levels -- some of this call buying could have been a result of shorts hedging their bearish bets.

Thanks to today's surge, the stock is now enjoying a more than 23% year-to-date lead. However, Emulex Corporation (NYSE:ELX) is running into double-barreled resistance near the $7.08-$7.15 region, which is home to its year-over-year breakeven mark and it's nearly filled May 1 bear gap, respectively.

Daily Chart of ELX Since January 2014

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