Credit: Shutterstock photoSomebody's putting all their chips on Red Hat's next quarterly report.
optionMONSTER's Heat Seeker program detected a large call roll in the software company, with 11,275 January 62.50s sold for $2.95 and an equal number of December 65s bought for $1.32. Volume was below open interest in the 62.50s, which suggests a long position was rolled closer in time but higher in price.
The strategy is highly unusual and seems to target next month's earnings report, likely to occur before the mid-December expiration. The trader probably thinks that the stock could move sharply on the numbers but is also limiting risk because the capital at stake was reduced by $1.63.
Long calls lock in the price where a stock can be bought. They can be safer than shares because of their cheap cost, while still providing exposure to a rally. (See our Education section)
RHT climbed 2.01 percent to $62.36 on Friday and is up 12 percent in the last month. Earnings have beaten estimates for the last five quarters, yet shares have remained below $63. That makes those December 65s even more noteworthy because they'll go worthless without a breakout to new highs.
Total option volume was 21 times greater than average in the name, with calls outnumbering puts by 72 to 1.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
