International Paper sees bullish spread

David Russell (david.russell@optionmonster.com)
January 28, 2013

Someone is betting that International Paper's big rally isn't over yet.

optionMONSTER's Heat Seeker monitoring system detected the purchase of 20,000 July 45 calls for $1.41 and the sale of an equal number of July 50 calls for $0.31. Volume was more than 70 times open interest at both strikes.

Known as a bullish call spread , the strategy will control a push from $45 to $50. It cost $1.10 to own that $5 move, translating to a profit of 355 percent if the paper and packaging company closes at $50 or higher on expiration.

IP rose 0.28 percent to $42.51 on Friday and is up 27 percent in the last six months.  The shares are now hovering around the same level where they peaked in 2004, which could be making some traders nervous about a pullback. At the same time, they may be hoping that the rally will continue.

Call spreads are an ideal response to that situation because they risk little capital but let the investor profit from a move in the intended direction. (See our Education section for other ideas on how to manage positions and limit potential losses.

IP is also scheduled report fourth-quarter results tomorrow morning.

Total option volume was 16 times greater than average in the session. Calls outnumbered puts by a bullish 10-to-1 ratio.

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