Options Trading News

September 12, 2013  Thu 3:47 AM CT

Red Hat has been breaking out this week, and traders are hoping the upward momentum will continue through next month.

More than 1,400 October 55 calls were purchased for $1.50 to $1.88 yesterday, according to optionMONSTER's proprietary Heat Seeker tracking system. The volume was well above the strike's previous open interest of 293 contracts, indicating that new positions were established.

These long calls lock in the price where the stock can be bought no matter how far it might rise. They could be sold earlier at a profit if premiums gain with a rally before then, but the contracts will expire worthless if shares remain below $55 through mid-October. (See our Education section)

RHT rose 1.19 percent yesterday to close at $53.47. The stock broke out of a tight range on Monday and is now at a potential resistance level tested in mid-August after running higher from below $46 in June.

The cloud-computing company is scheduled to report second-quarter results on Sept. 23 after the close.

Total option volume in RHT topped 5,400 contracts yesterday, double its daily average for the last month. Overall calls outpaced puts by more than 4 to 1.
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As I stated in last week's article, a break out or a break down needs to have a couple things happen before it is considered a confirmed break out or break down. The only problem is that in today's market where things move much more quicker than they did just a few years ago, two days could wind up being the majority of the expected movement, if not the whole movement.

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