Manulife Financial reports earnings next week, and the options paper heated up yesterday.
Activity focused solely in November, with traders buying the 17 calls for $0.70 and selling the 18s for $0.10. Chunks of 2,500 contracts traded in each.
Owning calls locks in where they can buy the stock, while selling calls will force them to unload shares if the strike price is reached. Combining the two controls a move between $17 and $18. They'll collect $1 if that higher price is reached, a 67 percent gain on their $0.60 cost. (See the discussion of vertical spreads in our Education section.)
MFC rose 1.45 percent to $17.49. It's the largest life insurance company in Canada by market cap. The company also operates in the United States and Eastern Asia. The U.S. accounts for 43 percent its earnings, while Canada contributes 28 percent and 39 percent comes from Asia.
The stock will have to reach near and through its 52-week highs for Tuesday's spread to expand all the way, and the activity suggests there is a belief that level may get tested.
In additional to the spread, more than 1,000 of the November 17s were bought naked, mostly for $0.60.
Calls outnumbered puts by 9 to 1, so it was definitely a bullish session. Total volume was 16 times greater than average.
Disclosure: I own MFC calls.
(A version of this post appeared on InsideOptions Pro yesterday.)
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