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February 1, 2011  Tue 1:05 AM CT

VeriFone Systems has been surging higher, and one trade is looking to ring the register in a huge way.

optionMONSTER's Heat Seeker tracking system detected an unusual three-way strategy on the company, which is enjoying huge growth for its point-of-sale credit-card systems. Some 1,800 April 39 calls were purchased for $3.65, while 3,600 April 45 calls were sold for $1.15 and 2,700 April 34 puts were sold for $1.07 and $1.08. Volume was more than 5 times open interest in all three contracts.

PAYPAY fell 0.12 percent to $39.94 yesterday after finding support at its 50-day moving average (black line on chart). It has roughly doubled since June but is down 10 percent since mid-January. Some traders may consider that an attractive pullback in the context of a bigger bull run and expect the momentum to continue higher.

The option trade resulted in a net cost of about $47,250, or $0.26 per call contact purchased. It will deliver a maximum profit of 2,207 percent if PAY closes at $45 on expiration. The gains will erode above that level and turn to losses over $51.

Given that the shares recently peaked around $45, the trader is probably targeting that level for a rebound. The transaction is an example of how investors can use options to generate massive leverage if their reading of the chart provides a strong sense of where the stock is heading.

The same is also true to the downside because the trade will also lose money if PAY falls below $34. But it has potential support at its $35.50 peak from November, which also reduces the position's risk.

Strong growth in the U.S and Latin America allowed the company to report better-than-expected- earnings and revenue on Dec. 2. The date of the release report hasn't yet been announced.

Overall option volume in the stock was 7 times greater than average yesterday.

(Chart courtesy of tradeMONSTER)

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