Options Trading News

January 17, 2013  Thu 4:45 AM CT

Xilinx is drawing bullish option activity ahead of the chip maker's earnings report after today's close.

More than 2,500 February 35 calls traded in a strong buying pattern yesterday as premiums rose from $1.38 to $1.79, according to optionMONSTER's Heat Seeker system. The volume was nearly 8 times higher than the strike's open interest of just 322 contracts before trading began, clearly indicating that these are new positions.

XLNX rose 1.34 percent to $36.20 yesterday. The stock bounced at support near $32 in mid-November and ran up past $37 at the beginning of the year, just below its 52-week highs.

The long calls purchased yesterday, which lock in the price where traders can buy shares, are looking for XLNX to see modest gains by expiration on Feb. 15. The options will track the share price closely because they are already in the money but carry far less risk than buying the stock directly, as only the premium will be lost if the stock drops below the $35 strike price. (See our Education section)

Total option volume in XLNX exceeded 6,900 yesterday, compared with its daily average of 1,461 contracts. Calls outpaced puts by more than 3.5 to 1.

The trades followed call buying in the June 35 and the February 36 contracts last month. The company is scheduled to announce results for its fiscal third quarter today at 5 p.m. ET.
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The covered call and unhedged risk

I have written a few things on the Covered Call Strategy over the last two weeks. Please understand that those two previous articles plus this one do not constitute a proper, fully in-depth lesson on the Covered Call Strategy like we have in our classes at Option Monster Education. I have picked out a few topics that I believe were worth noting and today I am going to add the final one.

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