By Jud Pyle, CFA, chief investment strategist for the Options News Network
Shares of transaction processor
Alliance Data Systems
are up nearly 100% since March 6, when the stock dipped to a 52-week low closing price of $23.78. At least one options investor boosted volume today on a bullish bet that the shares will continue to rally in the next couple months.
Looking at the July 50 calls, more than 5,000 of these contracts traded today vs. current open interest of just 54. According to ONN's Sidewinder report, an investor bought about 4,800 of these calls at an average price of $1.05 per contract at 11:15 EDT this morning with the stock trading $46.25. ADS stock closed today at $47.36, up more than $1.50, with the bulk of that rally happening in the last 90 minutes of the day. The calls closed the day at $1.60.
The bullish case for the stock is understandable. Despite the near doubling of the shares from their lows of March, the stock is just now getting into positive territory, up 1.78% on the year, compared to the
, which is up closer to 4% even after its slide today. Also, on a fundamental basis, the shares trade at less than eight times analysts' projected estimates. That is roughly a 20% discount to some of its peers such as
Automatic Data Processing
Call-buying such as this does not mean that investors should run right out and buy shares of ADS. However, with earnings set to be released likely before July expiration, and given the current valuation levels, it might be understandable while option investors are expressing a bullish view.
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Jud Pyle is the chief investment strategist for Options News Network (www.ONN.tv) and the portfolio manager of TheStreet.com Options Alerts. Click here for a free trial for Options Alerts. Mr. Pyle writes regularly about options investing for TheStreet.com.
Jud Pyle, CFA, is the chief investment strategist for Options News Network. Pyle started his career in finance in 1994 as a derivative analyst with SBC Warburg. After four years with Warburg, Pyle joined PEAK6 Investments, L.P., in 1998 as an equity options trader and as chief risk officer. A native of Minneapolis, Pyle received his bachelor's degree in economics and history from Colgate University in 1994. As a trader, Pyle traded on average over 5,000 contracts per day, and over 1.2 million contracts per year. He also built the stock group for all PEAK6 Investments, L.P. hedging, which currently trades on average over 5 million shares per day, and over 1 billion shares per year. Further, from 2004-06, he managed the trading and risk management for PEAK6 Investments L.P.'s lead market-maker operation on the former PCX exchange, which traded more than 10,000 contracts per day. Pyle is the "Mad About Options" resident expert. He is also a regular contributor to "Options Physics."