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

There was some interesting call-buying activity Monday in Ciena ( CIEN), despite a lack of company-specific news. The stock is currently up more than 100% from its early March lows, but at least one option buyer believes the run could continue.

Looking at the June 12.50 calls in CIEN, we find that they have traded nearly 25,000 times today vs. current open interest of 378 for an average price of around 76 cents. In order for these calls to be profitable at expiration, the stock needs to be higher than $13.26, which is the strike price plus the option premium. Shares of CIEN closed today at $10.90, and have not closed above $13 since Sept. 4, the day that the stock dropped more than 20% after the company announced disappointing earnings.

The buying of these calls has pushed up implied volatility. The calls on Friday closed 75 cents vs. $11.21 stock. That was an implied volatility of roughly 70. Today, with the stock at $10.83 and the options trading for 76 cents, that is an implied volatility of around 80. Intuitively as well, you can tell that implied volatility is higher. The calls are higher, with the stock lower. Calls are not supposed to rise when the underlying shares fall.

In order for this call buyer to make money, the shares of the stock need to rise. One catalyst that the investor might think could cause the stock to rise would be the company's quarterly earnings announcement. Ciena has not set a firm date for earnings yet, but based on recent history, it is likely that earnings will be announced some time around June 4. Given that shares of CIEN bottomed at $5.13 on March 3, this investor is betting on a continued bull-run to make money on these calls.

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."

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