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Discover bulls bet on big quarter

David Russell (david.russell@optionmonster.com)

Someone's looking for good news when Discover Financial Services reports earnings next week.

optionMONSTER's Heat Seeker monitoring program detected the purchase of 6,700 February 60 calls for $0.30. The volume was more than 19 times the previous open interest at the strike, clearly showing that new positions were initiated.

These long calls lock in the price where a stock can be purchased, letting investors cheaply position for a rally. That way they won't miss a breakout but also have limited capital at risk in the event of a selloff. (See our Education section for more on why it can make more sense to trade options than stocks.)

DFS fell 1.06 percent to $54.27 yesterday but is up 34 percent in the last year. The credit-card issuer roughly doubled in value between the start of 2012 and the middle of this year and has been advancing more slowly since.

Earnings come out after the closing bell next Thursday, Jan. 23, so yesterday's trader may be looking for a strong quarterly report. It's also noteworthy that DFS has never traded above $57, so he or she is looking for a breakout to new highs.

Total option volume in the name was 6 times greater than average in the session, according to the Heat Seeker. Overall calls outnumbered puts by more than 16 to 1.

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