Textron has surged to its best levels in six years, and traders are looking for the aircraft company to fly even higher in the next two months.
About 2,300 January 34 calls were sold from $2.55 to $2.30 while nearly 2,500 February 38 calls were bought for $0.95 to $1 on Tuesday, according to optionMONSTER's Heat Seeker tracking system. Volume was below previous open interest in the nearer-term contracts, indicating that an existing long position was closed and then rolled one month later to a strike $4 higher.
The new long calls lock in a $38 purchase price for the stock through mid-February no matter how far it might climb. They could be sold earlier at a profit if premiums rise with a rally before then, but the contracts will expire worthless if shares remain below the strike price. (See our Education section)
TXT fell 1.04 percent on Tuesday to close at $36 even. Last Friday shares spiked to $37.43, their highest price since September 2008, on reports that the company is planning to purchase Beechcraft for an estimated $1.4 billion. Textron is scheduled to report fourth-quarter results on Jan. 22 before the market opens.
Total option volume in the name reached nearly 10,000 contracts on Tuesday, quadruple its daily average for the last month. Overall calls outpaced puts by 3 to 1.
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