Call Seller Sees Limited Upside for EMC Corp (EMC)

03/09/2010 12:01 am EST

Focus: OPTIONS

Jud Pyle

Chief Investment Strategist, ONN.tv

Shares of data storage device company EMC Corp (EMC) have gained more than 2% so far, but at least one investor could be betting that the rally could peter out in the long term. EMC stock climbed around 42 cents to $18.29 during morning trading following a note from Oppenheimer that said a large valuation disconnect between EMC and VMWare Inc. (VMW) exists and needs to be resolved. The company also said shares of EMC could be undervalued.


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Around 10:35 am EST Monday, a block of 7,000 January 2012 20 calls traded for around $1.80 per contract. This means that the investor who sold these options is calling for EMC shares to stay below $21.80 at January 2012 options expiration. This is just a moderately bearish play because the maximum profit is just $1.80 per contract minus commissions if EMC shares drop to $0.

These calls are home to current open interest of just 7,200 contracts, indicating the investor opened this moderately bearish position in EMC. The January 2012 20 calls have an implied volatility of 25%, compared to a 30-day historical volatility of 29% (the selling action during morning trading most likely put pressure on implied volatility).

EMC shares reached a 52-week high of roughly $19 in October, and the stock is relatively unchanged since then. This could be the reason we’re seeing at least one investor call for limited upside in the stock throughout the longer term. The company has not announced its next earnings release, but the market expects the quarterly report sometime around April 22.

By Jud Pyle, contributor, ONN.tv

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