How Chart Support Helped Options Traders Score Big On NetApp Calls

Our bullish options trade on NetApp more than doubled

Managing Editor
Mar 22, 2018 at 1:30 PM
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Subscribers to Schaeffer's Event Trader service recently scored a 167% profit with the NetApp Inc. (NASDAQ:NTAP) March 55 call. We're going to take a look back to see why we were initially bullish on NTAP when we recommended the call, and how the options trade unfolded.

We entered our bullish NTAP position on Monday, Feb. 12, two days prior to the company's third quarter earnings report. At the time of the recommendation, the software concern was nestled above its year-to-date breakeven mark of $55.32, an area that contained stock's last two pullbacks. This area also coincided with the shares' 80-day moving average, adding an extra layer of support. 

Despite the stock's technical strength, bullish analysts were outnumbered. Of the 24 brokerages that were covering NTAP, 15 rated the shares a "strong sell" or "hold." This indicated that there was ample room for upgrades that could push the stock higher in the short-term. 

Near-term options traders were becoming less call-focused going into earnings, too, based on NTAP's rising Schaeffer's put/call open interest ratio (SOIR). Furthermore, a large chunk of this put open interest was at the 55 and 60 strikes, adding yet another potential layer of support for the software stock.

Immediately after we entered the trade, two more analysts joined the bullish fray, nudging the stock higher. While NetApp stock initially dropped after earnings, it quickly bounced back to the technical levels we identified. The equity continued to climb in the weeks after we entered the call trade, culminating in a 17-year high of $65.58 on March 14. 

We closed half of the NetApp call position back on March. 12, exactly one month after entry. We subsequently closed the final half on March 16, for a profit of 167%, allowing options traders to more than double their money.

Postmortem NTAP

 

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