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Bulls Are Eatin' up Eaton

By Pete Najarian, co-founder of OptionMonster

NEW YORK -- Eaton (ETN) has been running higher for months, and traders are looking for more upside.

OptionMonster's trade scanners Tuesday detected a call roll in the diversified industrial manufacturer, which recently hiked its quarterly cash dividend by 11%. The investor sold 5,000 March 62.50 calls for 90 cents and bought 5,000 April 65 calls for 90 cents.

It cost nothing to adjust the position, and the trader now has an additional month to profit from potential gains in the stock. Calls lock in the price where investors can buy shares, so they can generate nice leverage if Eaton keeps rising.

The company acquired Cooper Industries in 2012, and now the electrical business has swelled to 60% of revenue from 48% last year. The stock trades at a 12 forward price/earnings ratio and, looking further ahead, analysts expect profit of $5.98 a share by 2015.

The stock eased off earlier highs after the calls hit, but shares still finished the day up 0.05% to $62.15.

Overall option activity in the name was bullish, with 15,800 calls trading against just 380 puts. Total option volume was quadruple its daily average.

Najarian has no positions in ETN.
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.

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