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Packaging Corp. draws call buyers

Mike Yamamoto (mike.yamamoto@optionmonster.com)

Packaging Corporation of America has been trapped in a tight range in recent weeks, but traders are betting that it will break out in coming months.

Nearly 2,200 October 57.50 calls traded in a strong buying pattern on Friday as premiums rose from $0.30 to $0.50, according to optionMONSTER's Heat Seeker real-time tracking system. The volume was well above the strike's previous open interest of 467 contracts, indicating new activity.

These long calls lock in a $57.50 purchase price for PKG through mid-October regardless of how far it might rise. They could be sold earlier at a profit if premiums gain with a rally before then, but the contracts will expire worthless if shares remain below that strike price. (See our Education section)

PKG was up fractionally on Friday to close at $53.45, right in the middle of a tight range in place for nearly two weeks. The manufacturer of containerboard and corrugated packaging has been holding support at its rising 50-day moving average along the way. The sector has drifted lower in the last month but is still up more than 27 percent this year, according to our researchLAB analysis service. (See screen shot below)

Total option volume in PKG was 3,732 contracts on Friday, 14 times its daily average for the last month. Overall calls eclipsed puts by 8.5 to 1, a reflection of the session's bullish bias.

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