Learn the trade here. Make it on tradeMONSTER

Options Trading News

February 1, 2011  Tue 1:05 AM CT

PAY: SEE CHART GET CHAIN FIND STRATEGIES

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)

Share this article with your friends


TRADING WEEKLY OPTIONS

The fastest money in the market
View full report »

Premium Services

Free Webinars

How Can Equity Traders Beat the Algos

Education & Strategy

When to go in or out of the money

Some of our subscribers recently asked how to gauge positions that are in or out of the money, so I...

View more education articles »
optionMONSTER stockMONSTER tradeMONSTER