Owning calls gives the right to buy a stock at a certain level, while selling them obligates a sale if the shares reach the strike price. In the case of Friday’s trade, known as a bullish vertical spread, the calls have locked in the right to buy BMC for $45 if it closes at or above that level in mid-January. If it goes above $50, the trader must exit for that price.
The net effect is that the trader spent $1.65 and will collect $5 if BMC is at or above $50 at expiration — about 15 percent over Friday’s closing price. However, this call spread will more than triple in value from that move, which illustrates the kind of leverage that can be achieved with options.
BMC shares slipped 0.12 percent to $43.34 on Friday. The bullish option trade was especially interesting given the weakness in other enterprise-software companies recently. BMC’s last earnings report in July was bad as well, yet the stock quickly rebounded. Its next set of numbers will probably be released later this month based on last year’s calendar.
Overall option volume in the company, the subject of sporadic takeover speculation, was 19 times greater than average. Calls outnumbered puts by 40 to 1.
—By CNBC Contributor David Russell
Additional News: BMC Software Explores Potential Sale: Sources
Additional Views: Active in Cloud, Amazon Reshapes Computing
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David Russell is a reporter and writer for OptionMonster. Russell has no positions in BMC.