Options: Bullish Bets on Payroll Services

By Jud Pyle, CFA, chief investment strategist for the Options News Network

CHICAGO (TheStreet) -- The better-than-expected employment situation report could be a good sign for payroll service providers, as we saw heavy call buying today among the industry's stocks.

Looking at Automatic Data Processing(ADP Quote), an investor bought the Nov. 39 calls 4,700 times for $1.58 with the stock trading around $38.45 a share.

More than 5,100 of these calls have changed hands so far today, with a volume weighted average price of $1.59. These calls are trading up 57 cents to around $1.60 and are home to current open interest of 803 contracts, according to the Sidewinder report at www.onn.tv.

The investor needs ADP shares to expire higher than $40.58 in a few months. ADP shares have rallied more than 15% since the beginning of July from around $33, and at least one investor is betting that the stock has even more room to rally.

ADP isn't the only payroll services company experiencing heavy bullish options activity. More than 10,300 Dec. 30 calls have traded in Paychex(PAYX Quote) so far today. The volume weighted after price of these calls is 82 cents. These calls are up 45 cents on the day, and are home to current open interest of 1,352 contracts. These shares have also rallied 15% in the last month, and are currently up $1.50 to $27.73 on the day.

Implied volatility of PAYX Dec. 30 calls is unchanged from last night at 25 compared to a 63-day realized volatility of 27.84. The implied volatility of the ADP Nov. 39 calls is 23.5 today compared to 22.5 yesterday. These calls had a 63-day realized volatility of 22.61.