Bulls seek another winner in Covanta

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Option traders are coming back to Covanta after hitting a home run in the waste-management stock earlier this year.

OptionMonster's tracking programs detected the purchase of almost 22,000 March 22.50 calls for $0.75. Volume was more than 450 times open interest at the strike, indicating that new positions were initiated.

These calls lock in the price where shares can be purchased, letting investors cheaply position for a rally. They also have the potential to generate significant leverage from even a small move in the stock.

That's exactly what happened after our scanners detected bullish option activity on May 23: With Covanta at $20.22, the July 22.50 calls were bought for $0.10. The stock traded up to $21.29 the next day, a gain of just 5 percent, and those contracts more than tripled to $0.35.

Covanta was green when the calls hit yesterday, but it ended the session down 0.74 percent to $21.35. Its last earnings report on July 17 beat expectations on the top and bottom lines, and the shares are currently near their highest level since the broader market crashed in early 2009.

Total option volume in the name was 160 times greater than average in the session, with calls accounting for a bullish 97 percent.

—By CNBC Contributor David Russell

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