Call buyers look to build with Terex

optionMONSTER

Terex closed last week at its highest level in more than a year, and traders are looking for even more gains.

optionMONSTER's Heat Seeker system first detected a strong buying pattern in the February 32 calls on Friday as more than 4,600 contracts traded for prices starting at $0.35 in the morning and rising all the way to $1.35 at the close. The volume was more than double the open interest of 2,250 at that strike before the trading began, indicating that new money was being put to work.

Our scanners then picked up even more bullish activity in the afternoon, when more than 7,000 March 32 calls changed hands as premiums climbed from $1.55 to $2.35 against open interest of just 20 contracts at that strike. More than 1,200 March 34 calls were purchased as well, for $0.85 to $1.30.

TEX jumped 12.73 percent on Friday to close at $32.05, breaking resistance at the $30 level for the first time since May 2011. Shares of the company, which makes construction equipment such as cranes and aerial platforms, climbed after rival Oshkosh blew away earnings estimates and raised guidance in the morning.

Friday's calls lock in the price where traders can buy the stock no matter how high it goes, so these options can provide significant leverage if TEX continues to rally. If the shares don't move, however, those calls will quickly lose value as their expirations approach. (See our Education section)

The call buying pushed total option volume in Terex to 29,835 contracts, more than 13 times its daily average of 2,199 in the last month.

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