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October 10, 2012  Wed 12:20 PM CT

One trader sees a continued, if limited, rally in New Oriental Education & Technology.

EDU is down 0.48 percent this afternoon to $16.50. The Chinese education company had been trading at $28 in June but fell to a three-year low of $9.41 the next month after disclosing that it was under investigation by the Securities and Exchange Commission. Shares have been rallying since, and one trader is looking at the possibility of another bump higher.

Total option volume in EDU today is just shy of 20,000 contracts, compared to a daily average of 7,000 in the last month. An October call spread tops the activity.

A trader bought two blocks of 2,400 October 18 calls for $0.60 and $0.65 and, at the same time, sold two blocks of 4,800 October 19 calls for $0.25. The volume was more than open interest at both strikes, indicating that this is a new ratio spread.

The maximum profit would come if EDU is right around $19 at expiration, but above that the trader faces assignment and the requirement to sell the stock. (See our Education section)
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