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McAfee Calls Gain Ahead of Earnings and Takeover Rumor

Traders were snapping up calls in McAfee yesterday ahead of its earnings report this week amid rumors that the company might be a takeover target.

Upside option activity was heavy across several strikes, most notably the May and June 45 strikes. OptionMonster's real-time systemsshowed 9,530 May 45 calls changing hands against open interest of just 209 contracts in a strong buying pattern, mostly for prices from $0.25 to $0.75.

The June 45 options were just as active, with 9,816 calls trading over open interest of 2,874 contracts. Many of those calls were bought in a range between $0.35 and $1.

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  • The security software maker finished yesterday at $41.57, up 3.59 percent on the session. In addition to the buyout talk—which involved Hewlett-Packard as the possible suitor—technical analysts may believe that the stock is ready to break above the $42 level that has served as resistance going back to November of last year.

    McAfee's daily volume for all options has averaged just 700 for the last month, but yesterday it saw 31,542 contracts trade in calls alone. The calls outnumbered puts by 10 to 1.

    For the May and June calls purchased yesterday to turn a profit, McAfee stock would need to gain roughly 9 percent or 10 percent before their respective expirations. The company is scheduled to release its next earnings report Thursday after the close. ___________________________

    McAfee Competes With:

    Microsoft

    Symantec

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    Pete Najarian is a professional investor, CNBC contributor, regular co-host of CNBC's "Fast Money" and co-founder of OptionMonster.com.

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