The bulls are expecting fireworks when Discover Financial reports earnings on Thursday morning.
OptionMonster's tracking systemsdetected a surge of call buying in the high-flying credit-card issuer, most of which took place in the December 20 contracts. They fetched just $0.10 early in the session but quickly doubled in the first hour of trading—even as the shares pushed slightly lower. Given that calls generally move in the same direct as the stock, that's a sign of very strong demand for the options.
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They later climbed as high as $0.30. Volume ended the session at almost 6,400 contracts, more than four times open interest when the session began.
Discover rose 2.66 percent to $19.27 on Friday and is up 21 percent in the last three months. Its last earnings report on Sept. 20 was strong on every front, with profit crushing forecasts, charge-offs falling, and volumes improving.
There has been more good news on the broader industry since then: In mid-November major lenders including Bank of America and Citigroup reported a drop in delinquencies And last Tuesday the Federal Reserve reported that consumer credit grew in Octoberat the fastest pace since July 2008.
Friday's call buying suggests that traders expect the stock to rally before or immediately after the earnings report. The stock faces a long-term resistance level at $20, and some chart watchers may expect it to gap through that level if the results are good.
Calls outnumbered puts by more than 5 to 1 in the session, and overall option volume was 15 times greater than average.
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David Russell is a reporter and writer for OptionMonster.