Fortinet has been struggling, but some traders apparently think that the tide will turn.
optionMONSTER's Heat Seeker monitoring program detected unusual activity in the maker of Internet-security products, which is sitting near the bottom of its price range for the last two years. Early on Friday, a block of 1,000 December 19 calls were bought for $1.50 and an equal number of December 15 puts were sold for $1.40. Volume was more than 8 times open interest at each strike, clearly showing that this is new activity.
Owning calls locks in the price where shares can be purchased, while selling puts creates an obligation to buy them in the event of a selloff. Combining the two strategies is akin to getting long equity, with profits to the upside and losses to the downside. The so-called combination trade cost just $0.10 to open, which will provide significant leverage if the stock climbs into year-end. (See our Education section)
FTNT rose 1.1 percent to $17.50 in the session. Strong financial results caused the shares to almost triple between June 2010 and July 2011. But two of the last three four quarters missed expectations amid weakening demand and inventory problems.
July calls were also purchased in the final hour of trading. Some 4,000 of the 19s were snapped up for $0.30 and $0.40, followed shortly after with trades in the 18s for $0.55 and $0.60.
The date of the next earnings report hasn't yet been announced, but last year's calendar suggests that it will occur after those July contracts expire.
Overall option volume in FTNT was 16 times greater than average in the session, according to the Heat Seeker. Calls accounted for a bullish 87 percent of the total.
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