Options Bet on a Riverbed Rally

Riverbed Technologies has been on a massive run, and yesterday investors were looking for the rally to continue.

Activity focused on the June 39 and 45 calls. In the largest trade, an investor bought 14,000 of the lower strikes for $7.30 and sold 14,000 of the higher strikes for $3.90, according to OptionMonster's real-time tracking systems. The trade, known as a vertical call spread, cost $3.40 and will earn a maximum profit of 76 percent if RVBD closes at or above $45 on expiration.

A second big trade, known as a ratio spread, delivers much more leverage but with greater risk: Instead of buying and selling equal number of each contract, investors sold twice as many June 45 calls. That reduced their cost basis to about zero, which will let them earn huge profits on a percentage basis from a limited move.

The ratio spread, differs from the vertical because it's designed to ride only a limited rally. The larger short position in the 45 calls means that profits will erode above $45 and turn to losses over $51.

All the trades occurred around the same time, so were probably the work of a single investor using multiple strategies to get long the stock.

RVBD rose 1.96 percent to $42.69 yesterday and has more than tripled in the last year. It's been riding a wave of enthusiasm for cloud-computing stocks as large enterprises migrate huge amounts of information to third-party data centers. Net income at the company, whose products are used to enhance network efficiency, surged more than 1,200 percent on a year-over-year basis the December quarter.

Calls accounted for 93 percent of the option volume in RVBD yesterday, reflecting the bullish sentiment.

Disclosure—Russell has no positions in RVBD.

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David Russell is a reporter and writer for OptionMonster.