More calls spreads targeting L-3
L-3 Communications drew bullish option activity for the second session in a row yesterday, ahead of its earnings report next week.
optionMONSTER systems detected the purchase of 2,230 December 120 calls, with the biggest block going for $2.87, and the sale of corresponding December 130 calls for $0.82. Previous open interest in the two strikes was 26 and 0 contracts respectively, showing that this is new positioning.
The bullish call spread will take a maximum gain with LLL at $130, but the trader will be on the hook to sell shares if the stock rises above that level. The trade follows a November 115/130 call spread opened on Wednesday .
Traders often use such vertical spreads to reduce the cost of the position by selling higher-strike calls. If shares fall below the strike price of the lower calls that are purchased, the loss is limited to the cost of the options. (See our Education section)
LLL was rose 2.48 percent yesterday to close at $114.43. That leaves the stock in the middle of its recent range amid the heightened volatility. The communications defense contractor reached a 52-week high of $127.27 in early June but gapped down in late July after citing accounting irregularities.
Yesterday's call spread dominated the option volume in the name, driving the session total to more than 10 times its daily average for the last month. L-3 is scheduled to release quarterly results before the market opens next Thursday, Oct. 30.
More From optionMONSTER
