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June 19, 2014  Thu 4:14 AM CT

NTAP: SEE CHART GET CHAIN FIND STRATEGIES
Traders are turning bullish on NetApp ahead of its annual meeting with financial analysts next week.

optionMONSTER's Heat Seeker system shows that 2,865 July 38 calls were bought for $0.32 to $0.36 in less than 3 minutes yesterday. The volume was above the strike's previous open interest of 1,956 contracts, indicating that this is a new position.

These long calls lock in the price where the stock can be purchased for the next month no matter how far it might climb. They could be sold earlier at a profit if premiums rise with a rally before then, providing potentially significant leverage, but the contracts will expire worthless if shares remain below $38 through mid-July. (See our Education section)

NTAP rose 2.13 percent yesterday to close at $36.47, just off the morning's intraday high. The data-storage manufacturer gapped up from the $34 level after reporting quarterly results on May 21 and climbed above $37.50 at the beginning of June, but it has since pulled back.

The company announced yesterday that it will hold its 2014 Financial Analysts Day on Tuesday.

NetApp's overall option volume exceeded 13,000 contracts yesterday, with calls accounting for 85 percent of the total.
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Education & Strategy

Sweet Spot Exceptions

As discussed last week, when using the Stock Replacement Strategy to replace a stock position to trade direction, we want to use an option that has very similar characteristics to the stock. We talked about using the deep in-the-money, 80 to 85 delta option that is similar in the Greeks and has relatively little extrinsic value which tends to work against us in stock directional trading.

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