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Call buyers hope Cummins will fire up

Mike Yamamoto (mike.yamamoto@optionmonster.com)

Cummins drew some last-minute call buying at the end of last week amid signs of improvement in the global economy.

optionMONSTER's Heat Seeker system detected bullish buying in the September 135 calls, which saw 1,783 contracts trade mostly for $0.40 in the last 40 minutes of Friday's session. The volume was well above the strike's open interest of 540 before the trades appeared, indicating that these are new positions.

These long calls lock in the price where traders can purchase the stock no matter how far it might rise by mid-September. The contracts could be sold earlier at a profit if premiums rise in a rally before then, but they will expire worthless if the Cummins' shares remain below $135. (See our Education section)

CMI rose 0.25 percent on Friday to close at $124.02. Earlier in the session it came within $0.02 of the 52-week high it reached the day before. The engine manufacturer gapped lower in June on weak economic data and credit concerns in China, but shares then bounced off their 200-day moving average around $107 and have been trending higher since.

Total option volume in CMI on Friday was 54 percent higher than its daily average for the last month. Overall calls outnumbered puts by more than 3 to 1.

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