Calls lock in the price investors must pay to buy shares in the company, which manufactures vehicles such as military trucks and buses, along with engines, parts, and chassis. Those options can generate significant leverage if Navistar rallies, but will expire worthless if it doesn’t.
Navistar shares climbed 4.72 percent to $24.18 yesterday, but has been falling steadily since February, when it was over $47. It was recently downgraded by Fitch Ratings, and the cash flows have taken a hit. Billionaire investor Carl Icahn has been fighting the trend, adding to positions in recent sessions in anticipation of a turnaround.
More than 14,000 calls traded in the name yesterday compared with fewer than 2,000 puts, a reflection of the bullish sentiment.
—By CNBC Contributor Pete Najarian
Additional News: Navistar Rises as MHR Fund Boosts Stake
Additional Views: Too Little, Too Late for Navistar?: Greenberg
Options Trading School:
Pete Najarian is a professional investor, CNBC contributor, regular co-host of CNBC’s “Fast Money” and co-founder of OptionMonster.com. Najarian has no positions in Navistar.