How the Call-Buyers Are Playing Nuance Ahead of Earnings

By David Russell of  OptionMonster

NEW YORK -- The bulls hope Nuance Communications (NUAN) will talk their language when earnings come out later this month. 

OptionMonster's Heat Seeker system detected heavy call buying in the maker of voice-recognition software on Friday. The first large blocks hit in the December 17s for 40 cents to 50 cents. Some 4,250 traded at more than nine times the previous open interest, showing that new money was put to work. 

Minutes later, there was more buying in the November 15 calls for 55 cents to 70 cents. Volume approached 3,600, inching above previous positioning of 2,827 contracts at that strike.

NUAN rose 4.05% to $15.43 on Friday. Investors will monitor the Nov. 24 quarterly report for evidence the management is successfully transitioning to a subscription-based revenue model. If it fails to do so, a selloff could result. 

Calls help manage that risk because they only confer the right to buy stock at a given level. That way, investors must only risk the low premiums rather than the full price of the shares. 

Total option volume was triple the daily average, with calls outnumbering puts by 26 to 1. Carl Icahn is also a major holder in the name. 

Russell has no positions in NUAN.

 

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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