Seagate Sees Bullish Move

CHICAGO ( TheStreet) -- Following a downgrade from BMO Capital Markets, shares of Seagate Technology ( STX) are struggling to recover during Tuesday's trading session. Still, out-of-the-money call action suggests several investors anticipate a come-back in the near term.

STX stock is currently down 63 cents, or more than 3%, to $18.27 aftert BMO analysts on Monday downgraded the data storage devices producer to "market perform" from "outperform."

STX shares reached their 52-week high of $21.58 on March 1. Options action during midday trading suggests some investors anticipate a new high during the next couple months.

By 12 p.m. EST, more than 11,600 OTM May 22 calls had changed hands for roughly 28 cents per contract versus current open interest of just 851 contracts. This action suggests investors likely bought the calls to open betting that the stock will climb higher than $22.28 prior to May options expiration.

This means investors who bought the calls will make money if STX shares rally at least 21% during the next 52 days. Implied volatility of the 22-strike calls is 44% compared to the stock's 30-day historical volatility of 46%. These options have dropped eight cents so far on the day.

Investors who bought these calls do not necessarily have to hold them until expiration. If STX shares rally significantly before May options expiration, they can choose to take profits and sell back the options.

It's interesting that at least one investor anticipates the stock to climb even after the company's earnings report, which the market expects sometime around April 21.

-- Written by Jud Pyle in Chicago

At the time of publication, Pyle was not long in the stock mentioned. 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."

More from Options

Rent-A-Center Bulls Quadruple Their Money

Rent-A-Center Bulls Quadruple Their Money

Let the Najarian Brothers Crash-Proof Your Portfolio

Let the Najarian Brothers Crash-Proof Your Portfolio

Let the Najarian Brothers Help You Generate Income With Options

Let the Najarian Brothers Help You Generate Income With Options

All Investors Can Trade Options, Just Ask the Najarian Brothers WATCH VIDEO

All Investors Can Trade Options, Just Ask the Najarian Brothers WATCH VIDEO

Learn Options Trading from the Najarian Brothers, the Best in the Business

Learn Options Trading from the Najarian Brothers, the Best in the Business