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Is Skullcandy Ready for a Bounce?

By Pete Najarian, co-founder of OptionMonster

NEW YORK -- Skullcandy (SKUL) has struggled recently but saw bullish option activity on Tuesday.

OptionMonster's trade scanners show that chunks of December 5 calls were purchased for 55 cents. More than 1,400 traded in volume well above the strike's previous open interest of just 47 contracts, indicating that this is fresh buying.

These calls lock in the price where shares can be bought, providing investors with a less expensive way to benefit from a rally without paying for the stock directly. They can generate some nice leverage in a rally while limiting losses if the stock drops.

Skullcandy shares ended the session down 1.17% to $5.07. Calls outpaced puts by 3,300 to 173, a reflection of the day's bullish sentiment. Total option volume in the name was 10 times greater than average.

The headphone maker's recent earnings haven't been solid, to say the least. But its shares have seen support at the $5 level where Tuesday's option activity was focused as traders look for a recovery by year's end.

Najarian has no positions in SKUL.
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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