Options Trading News

September 27, 2011  Tue 2:46 AM CT

BorgWarner is back to a key level, and the bulls are coming back.

optionMONSTER's Heat Seeker monitoring program detected the sale of 1,500 October 50 puts for $0.90. At the same time, 750 contracts were bought in each the October 65 calls for $1.24 and the October 70 calls for $0.36.

The trade resulted in a credit of about $0.10 and will profit from a rally in the maker of auto parts. By combining two calls, the investor created a position with the potential to earn massive profits if BWA rallied significantly above $70. They also stand to lose money to the downside. (See our Education section)

BWA lost 1.24 percent yesterday to close at $59.15 and has fallen to the same $60 area where it paused while advancing last November. If that old resistance level now becomes support, chart watchers will probably consider it a bullish sign.

Its last earnings report on July 28 beat expectations on the top and bottom lines. Management also raised guidance, citing strong demand for its fuel-efficiency products.

Investors returned to the October 70 calls later in the session, pushing total volume north of 1,500 contracts in the strike.

Overall option volume in BWA was about 9 times greater than average, according to Heat Seeker.
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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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