Call Selling in Cognizant Technology

NEW YORK (TheStreet) -- Shares of Cognizant Technology Solutions(CTSH Quote) hit a new 52-week high intraday Wednesday of $43.09, before retreating to close at $41.87. As the stock was bouncing around this one-year peak, call sellers came out of the woodwork.

Part of the motivation for this call selling could be an investor who is long on the stock and is turning it into a buy write. So this is not an aggressively bearish play, but rather an investor who thinks that in the near term, the upside in the shares could be limited.

The call strike that saw the most volume today was the December 42.5. More than 5,200 of those options traded today, with the bulk of the volume occurring when the stock was trading near $42.90 around midday. The calls traded near $2.30, which computed to an implied volatility of 34.5.

By the end of the day, market makers had lowered the implieds so much that the options actually fell by 15 cents on the day to $1.75, despite the stock falling only 10 cents.

CTSH has experienced a decent run since Xerox announced the acquisition of Affiliated Computer Services, which provides IT consulting services similar to Cognizant. That run was capped off by a better-than 8% jump on Tuesday following the quarterly earnings release.

That kind of a jump and a bet on declining volatility now that earnings have passed combined for the ultimate motivating factors for this call sale.

-- Written by Jud Pyle in Chicago