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Bullish bettors have converged on Red Hat, Inc. (RHT - 52.89) today, as north of 9,600 calls have changed hands so far, reflecting 14 times the equity's expected intraday volume. Most popular has been the out-of-the-money April 55 strike, where roughly 4,400 of these calls have crossed. Currently, this option holds peak call open interest of 5,030 contracts.
Digging deeper into the data, it appears that a block 3,848 calls was bought at the aforementioned April 55 strike, while an equal number of calls traded closer to the bid at the April 57.50 strike. This could be indicative of a bull call spread, in which case the trader needs the stock to close at or above $57.50 by the time April-dated options expire. However, because it is unclear as to whether new positions are being initiated at the 55 strike, this could also be a case of a trader rolling up his call position -- thus deepening his bullish stance on RHT.
Either way, this predilection for calls over puts is more of the same for software security. Data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) reveals a 10-day call/put volume ratio of 3.02 for RHT, signaling that calls bought to open have tripled puts during the last 10 sessions. This ratio arrives in the 62nd percentile of its annual range, meaning that traders have been scooping up bullish bets over bearish at an accelerated clip.
Technically, RHT is ahead by almost 28% year-to-date, and has bested the broader S&P 500 Index (SPX) by more than 13% during the past 60 sessions. On the charts, the stock continues to be guided higher by its 10-week moving average, which has acted as a floor for the stock since mid-January.
It also bears mentioning that RHT is slated to take its turn in the earnings confessional on Wednesday, and has topped analysts' bottom-line estimates in each of the past four quarters. At last check, the equity is up about 2% to wink at the $52.89 level.