An aggressive upside strategy has yielded huge profits.
On May 3, Investitute’s market scanners detected the purchase of 2,000 July $8 calls for $0.68 and the sale of 2,000 June $7 puts for $0.33, resulting in a net cost of $0.35. Volume was well above open interest in both strikes showing that these were new positions established as shares traded for $7.62.
Today the calls traded for $1.67 while the puts were marked at $0.10–a theoretical gain of $1.57, or some 350 percent. The stock rose less than 23 percent in that time, showing how far options can outperform their underlying shares.
Such combination trades are particularly bullish because a rally boosts the price of the long calls while decreasing the value of the puts that were sold. Calls lock in the price where the stock can be purchased, gaining with a rally and providing leverage to the underlying shares with limited risk. The sale of the puts reduces the overall cost of the strategy but obligates the trader to sell shares at a certain price if they fall.
OCLR surged 10.24 percent today to close at $9.37. Oclaro rallied along with other network-technology companies.