Infinera (INFN) Option Bulls Buoyed By Acquisition Buzz

Infinera Corp. (INFN) has placed a $345 million bid for Transmode

Apr 9, 2015 at 2:19 PM
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Infinera Corp. (NASDAQ:INFN) is up 2.4% at $19.91 -- and earlier hit a seven-year high of $20.59 -- following news the optical services provider has put in a $345 million bid for Swedish peer Transmode. In the options arena, call players have been quick to take note of today's rally, with the contracts trading at seven times the average intraday rate, and outpacing puts by a 4-to-1 margin.

Most active is INFN's May 20 call, where 3,122 contracts have changed hands. It seems safe to assume new positions are being purchased here for a volume-weighted average price (VWAP) of $1.47. Based on this average entry price, breakeven for today's call buyers at the close on Friday, May 15 -- when the back-month options expire -- is $21.47 (strike plus VWAP), or territory not charted since December 2007.

Today's call-skewed session is just more of the same for a stock that's surged more than 143% over the past 52 weeks. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), INFN's 10-day call/put volume ratio of 60.24 ranks in the 75th annual percentile. Meanwhile, INFN's Schaeffer's put/call open interest ratio (SOIR) of 0.11 rests lower than 94% of similar readings taken in the past year, indicating short-term traders have rarely been as call-heavy toward the stock as they are now.

Outside of the options pits, sentiment is more skeptical. The equity's 12-month price target of $20.31 is within a chip-shot of current trading levels. Plus, short interest accounts for a healthy 10.7% of INFN's available float, and would take more than two weeks to cover, at average daily trading levels. Should Infinera Corp. (NASDAQ:INFN) continue its trek into multi-year-high territory, a round of price-target hikes and/or a short-covering rally could create a fresh burst of buying power for the shares.


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