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Strategy looks for boom or bust in SAP

David Russell (david.russell@optionmonster.com)

Someone is looking for a pop or a drop when SAP reports earnings today.

optionMONSTER's monitoring programs detected the purchase of some 3,100 June 77.50 calls for $3.30 and 3,100 June 77.50 puts for $3.70. Volume was more than 6 times the previous open interest at each strike, indicating new activity.

Known as a straddle , the trade is a high-cost wager that volatility will increase in the German software giant. It cost $7 to open and will make money if the stock falls below $70.50 or climbs above $84.50 by expiration. (See our Education section)

SAP rose 1.73 percent to $78.21 yesterday. It rallied about 50 percent between June and January but has been trading in a range since. The shares are now back near their all-time peak from the tech bubble in early 2000, which could be leading some traders to expect an explosive rally or a sharp drop from this level.

Yesterday's straddle also stands to profit from implied volatility increasing, which would push up premiums even if SAP shares don't move.

Later in the session, another investor took the opposite side of the trade, selling 3,600 April 75 puts for $0.65 and $0.70. This trader will pocket the premium as profit if SAP stays above the strike price through the close this afternoon.

Total option volume was almost 5 times greater than average in the session.

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