NEW YORK --- An interesting trend emerged in the option market last week as traders bet on stocks to break out to new highs.
OptionMonster's Heat Seeker tracking system identified bullish call-buying that is looking for several names to clear their resistance levels. And in some cases, traders have already profited nicely from those moves occurring.
Long calls lock in the price where investors can buy a stock, letting them position for a rally at limited cost. They carry less risk than owning shares because the most that can be lost is the price of the options no matter how far the stock might fall.
Here are some examples that we have seen in just the last few days:
Dunkin' Brands (DNKN) : Traders rolled the November 47.50 calls up to the December 50s last Wednesday. The doughtnut chain was back to a resistance line around $48 that dated to the spring. It pushed higher the next session, and those calls almost doubled.
EMC (EMC) : The data-storage company has never spent much time above $30, but that didn't stop traders from buying the December 31 calls on Friday.
Express Scripts (ESRX) : A position was rolled from the January 72.50 calls to the January 80 calls on Thursday. The pharmacy-benefit services provider has never traded much above $79.
NetApp (NTAP) : The network-storage company has been trapped below $46 for more than three years, but traders were buying the December 46 calls on Friday.