Traders Think Cavium Is Ready to Rally

By David Russell, reporter at OptionMonster

NEW YORK -- Cavium Networks (CAVM) has been trading above a key level and on Monday the bulls stepped in.

OptionMonster's scanning systems detected the purchase of 1,700 March 37 calls for $1.95. There was no open interest in the strike at the beginning of the day, which indicates that new positions were initiated.

Long calls lock in the price where investors can buy shares in the maker of networking chips. These options will generate some nice leverage in the event of a rally but will expire worthless if the stock doesn't move.

Cavium's shares rose 4.73% to $34.10 Monday. It more than quadrupled between early 2009 and early 2011 but then rolled over and lost half its value.

Shares have been rebounding since the summer after some strong earnings reports and have stayed above their 200-day moving average. That could make some traders believe that the stock's long-term uptrend will continue.

Volume of 3,600 contracts was more than 20 times greater than average in the session. Calls accounted for more than four-fifths of the total.

Russell has no positions in CAVM.

This commentary comes from an independent investor or market observer as part of TheStreet guest contributor program. The views expressed are those of the author and do not necessarily represent the views of TheStreet or its management.