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Bulls target Emerson Electric

David Russell | Writer, OptionMonster
Monday, 22 Jul 2013 | 6:20 AM ET
Andrew Errington | Stone | Getty Images

Industrials have been strong, and now the bulls are targeting Emerson Electric.

OptionMonster's trade scanners detected the purchase of 3,300 August 60 calls for $0.30 shortly after the opening bell on Friday. Almost 4,300 of those contracts would eventually trade, more than 5 times the previous open interest in that strike.

These calls lock in the price where the stock can be bought, providing an inexpensive way to profit from a rally without buying shares directly. The options can generate huge leverage from even a small move in the underlying stock but can expire worthless if it doesn't move in the next month.

Will the S&P 500 continue to rally?
Michael Purves, chief global strategist at Weeden & Co., says that the risks for the S&P 500 are to the downside after the index closed at a new record high on Friday.

Emerson was trading for about $57.88 when the calls hit, and it closed at the session high of $58.80 for a gain of 1.84 percent. But that return percentage paled next to the performance of the August 60 calls, which almost doubled to $0.55.

The stock peaked around $60 in May, pulled back its 200-day moving average in June, and is now finding support above its 50-day moving average. That could be leading some chart watchers to believe that it will continue to rally.

Industrials have been popular in the last week, delivering roughly triple the performance of the S&P 500 over that period. Emerson will announce quarterly results before the opening bell on Aug. 6.

Overall option volume was six times greater than average in the session, with calls accounting for a bullish three-quarters of the total.

—By CNBC Contributor David Russell

Additional News: Game Plan: Cramer's earnings strategies


Additional Views: Market rallies despite mixed data

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Disclosures:

David Russell is a reporter and writer for OptionMonster. Russell has no positions in EMR.

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