Options action is heating up in Novellus Systems after Bank of America/Merrill Lynch upgraded the stock to "buy."
Overall Novellus call volume exceeded puts by almost 9 to 1, reflecting a broadly bullish sentiment toward the chip equipment maker. Most of the activity consists of bullish call buying and selling.
- Options Tips from Jon Najarian
- Read The CNBC Stock Blog
- Options Tips from Pete Najarian
In the largest trade, an investor sold 3,000 September 17.50 calls for $1.85, according to OptionMonster's tracking systems. The transaction occurred less than a minute after a large number of shares were purchased for $17.10, indicating a "covered call" strategy.
By purchasing the stock and selling the calls, the investor reduced his or her cost basis to $15.25. In exchange, they lost the right to profit from Novellus rallying above $17.50.
Novellus rose over 8 percent to more than $17 in afternoon trading and has traded between about $15.70 and $18.70 since late March. Merrill Lynch raised its price target on the chip-equipment company to $20 and said it will benefit from cost cuts and the introduction of new products.
Traders also bought the May 15 calls betting on a quick rally in the shares. More than 2,000 contracts changed hands today for $1.40 to $2.30 against open interest of 1,547 contracts. Purchases accounted for at least 65 percent of the volume.
David Russell is a reporter and writer for OptionMonster.