Cadence draws bulls before report

optionMONSTER

Cadence Design Systems reports earnings in less than two weeks, and yesterday traders were making long-term bullish bets on the semiconductor name.

More than 7,000 February 18 calls were bought for $0.95 to $1.05 yesterday afternoon, according to optionMONSTER's Heat Seeker tracking system. This is clearly new positioning, as open interest in the strike was a mere 2 contracts before the trades appeared.

These long calls lock in the price where the stock can be purchased, providing potentially significant leverage to a rally. But they will expire worthless if shares remain below $18 through mid-February 2015. (See our Education section)

CDNS fell 1.49 percent to $17.22 yesterday after reaching an all-time high of $17.66 in the previous session on the heels of a strong earnings report in April. The company, which makes software used in chip production, will release its next quarterly results after the closing bell on July 21.

Yesterday's total option volume in Cadence was more than 14 times its daily average for the last month. Overall calls outnumbered puts by 81 to 1, a reflection of the session's bullish sentiment.

(A version of this post appeared on InsideOptions Pro yesterday.)

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