Emulex Corporation (ELX) Call Volume Hits Fever Pitch

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

Jan 13, 2015 at 2:42 PM
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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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