Stock Options Watch: CSCO, FTNT, ELX

By Jul 3, 2013, 1:29 PM Author's Blog  

CSCO – Cisco Systems, Inc. – Shares in Cisco Systems are up the most in the Dow Jones Industrial Average this morning, trading up 1.15% at $24.60 as of 11:15 a.m. in New York. Trading traffic in weekly options contracts on the maker of switches and routers today indicates some traders are positioning for the price of the underlying to continue to climb in the near term. Out-of-the-money calls that expire next week attracted buyers in the early going, with roughly 1,400 lots in play at the Jul 12 ’13 $25 strike. It looks like most of the volume was purchased for an average premium of $0.17 apiece, thus positioning buyers to profit at expiration next week should CSCO’s shares rally another 1.3% over today’s high of $24.84 to exceed the average breakeven point at $25.17. The Jul 12 ’13 $25.5 and $26 strike calls are also active, with more than 900 of the $25.5 strike calls purchased at a premium of $0.09 apiece and roughly 300 of the $26 strike weekly calls picked up for a premium of $0.03 each. Options traders are favoring calls on CSCO overall today, with the call/put ratio hovering around 4.5 at 11:30 a.m. ET.

FTNT – Fortinet, Inc. – A large call spread initiated on Fortinet on Wednesday morning looks for shares in the provider of network security solutions to rise markedly during the next six weeks. The stock rallied as much as 7.3% today to a near four-week high of $18.62 after the company announced it will report second-quarter earnings on July 30th. The largest transaction in FTNT options during today’s shortened holiday trading session was the purchase of a 10,000-lot Aug $20/$22 call spread for a net premium of $0.45 each. The spread starts making money if shares in Fortinet rally 10% over today’s high of $18.62 to top the effective breakeven point at $20.45, with maximum possible profits of $1.55 per contract available on the position should shares in the name surge 18% to $22.00 by August expiration.

ELX – Emulex Corp. – Shares in chipmaker, Emulex, surged 35% in early trading on Wednesday to hit a new 52-week high of $8.99 after a Bloomberg News report, citing persons with knowledge of the situation, said the company hired Goldman Sachs to explore putting itself up for sale. The report moved the price of the underlying and sparked heavier than usual trading traffic in ELX options, driving volume above 5,950 contracts versus the stocks average daily volume of around 160 contracts, by midday in New York. The stock is currently up 14.4% to stand at $7.62 as of 11:55 a.m. ET. Front months call options attracted the bulk of the total volume, with roughly 2,800 of the Jul $8.0 strike calls in play against open interest of 914 contracts. Time and sales data suggests most of the calls were purchased in the early going for an average premium of $0.19 apiece. Buyers of the $8.0 strike calls stand ready to profit at expiration in a couple of weeks should shares in Emulex rally 7.5% over the current price of $7.62 to exceed the average breakeven price of $8.19.

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