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Buffett goes Deere hunting, and traders follow suit

Shares of Deere rallied after a 13-F filing revealed that Warren Buffett's Berkshire Hathaway nearly doubled its stake in the company during the last quarter. The filing disclosed that Berkshire now owns 5 percent of Deere's total shares, or 17.1 million, as of fourth quarter, up from 7.6 million in the previous quarter.

The move boosted the stock to its highest level since May 2014 and set off a flurry of bullish activity in the options market.

Read MoreBerkshire buys Deere, dumps Exxon

On Wednesday, Deere options traded more than two times their average daily volume, with calls outnumbering puts by more than 2 to 1. Traders appeared to focus their buying to the March 95-strike calls, with over 2,800 of those contracts trading hands throughout the day. Since buying a call gives one the right to purchase a stock for a given price at a specific time, this trade is effectively a bet that Deere stock will rally above $95 per share by March expiration, or another 3 percent from current levels in the next month.

"Looking at a long-term chart, you can see that the stock is very close to breaking out to its all-time high of about $100 [per share]," said Dan Nathan, founder and editor of RiskReversal.com and a CNBC contributor. "That's probably where the stock is heading in the near term on the heels of Buffett."

The Buffett news came just days before Deere's earnings release Friday morning. "When you think about [these trades] into earnings, a defined risk play in the options market makes sense," said Nathan. "The options market is implying a 2.5 percent one-day move versus the average 1.5 percent move in the last four quarters."

Wall Street is expecting Deere to earn 83 cents per share on $5.5 billion in revenue, according to FactSet.

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    Melissa Lee is the host of CNBC's “Fast Money” and “Options Action.”

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