Calls Popular as Infinera Corporation (INFN) Rallies

Infinera Corp. (INFN) option traders anticipate new highs

Mar 26, 2015 at 2:25 PM
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Infinera Corp. (NASDAQ:INFN) is bucking the broad-market downtrend, up 5.3% to hit $18.74, after MKM Partners reportedly waxed optimistic on the company's new products and technology vision. This good news is more of the same for the shares of INFN, which have advanced a staggering 109.4% year-over-year. In response to today's uptick, call activity is ramping up in the options pits, with some traders betting that the shares will continue their uptrend.

Drilling down, calls have traded at 16 times the average intraday rate, and are outpacing puts by an over 58-to-1 margin. Today's most active contract is the May 18 call, where it appears a decent portion of the action is of the buy-to-open category. The volume-weighted average price (VWAP) of the call is $1.58, meaning the buyers will profit if INFN topples $19.58 (strike plus VWAP) -- in seven-year-high territory -- by the close on Friday, May 15, when the contracts expire.

This spate of call buying runs parallel to recent sentiment in the options pits, as INFN's Schaeffer's put/call open interest ratio (SOIR) of 0.11 ranks in the 3rd percentile of its annual range. Simply stated, short-term speculators have rarely been this call-heavy over the past year. However, approximately 10.7% of the stock's available float is sold short, which would take over two weeks to cover, at average trading volumes. As such, it's possible that some of the calls on the long side -- especially at out-of-the-money strikes -- may have been initiated as hedges by shorts.

Meanwhile, the brokerage bunch is mostly bullish on Infinera Corp. (NASDAQ:INFN), as 78% of covering analysts rate the stock a "strong buy," with no "sell" or worse recommendations to be found. There's still room on the bullish bandwagon, though; the security's average 12-month price target of $18.94 is within striking distance of the shares' current perch.

Daily Chart of INFN Since March 2014

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