By Pete Najarian of OptionMonster
NEW YORK --Manulife Financial (MFC) reports earnings next week and the options paper heated up Tuesday.
Activity focused solely in November, with traders buying the 17 calls for 70 cents and selling the 18s for 10 cents. Chunks of 2,500 contracts traded in each.
Owning calls locks in where traders can buy the stock, while selling calls will force them to unload shares if the strike price is reached. Combining the two controls a move between $17 and $18. They'll collect $1 if that higher price is reached, a 67% gain on their 60-cent cost.
Manulife rose 1.45% to $17.49. It's the largest life insurance company in Canada by market cap. The company also operates in the United States and Eastern Asia. The U.S. accounts for 43% its earnings, while Canada contributes 28% and 39% comes from Asia.
The stock will have to reach near and through its 52-week highs for Tuesday's spread to expand all the way, and the volumes suggests there is a belief that level may get tested.
In additional to the spread, more than 1,000 of the November 17s were bought naked, mostly for 60 cents.
Calls outnumbered puts by 9 to 1, so it was definitely a bullish session. Total volume was 16 times greater than average.
Najarian owns MFC calls.