Bulls Charge Thoratec Pre-Earnings

by David Russell

Medical device maker Thoratec (THOR) started the session down 13 percent in the last month, but some traders think it still has a pulse.

New money flowed into the November 25 calls, which traded 2,000 times for $2.30, according to optionMONSTER's Heat Seeker tracking system. Volume was more than 50 times open interest in the strike.

THOR rose 1 percent to $26.87 in morning trading. The maker of circulatory devices will report third-quarter earnings after the bell on Nov. 4. The company raised its full-year forecasts the last time it published results on Aug. 5.

The call buyers need the shares to rally only about 2 percent to earn a profit. By purchasing in-the-money options rather than-out-of-the-money strikes, they received higher deltas and are more sensitive to small changes in the underlying stock price. The drawback of the strategy, also seen observed yesterday on Textron (TXT), is that it requires a larger outlay and generates a smaller percentage gain on a big move.

There was also activity in the November 32.50 calls, which investors sold, possibly against positions in the stock, and the November 30 calls, which were purchased. Volume was below open interest in both strikes.

Overall options volume in THOR was four times greater than average. Calls in the name outnumbered puts by 302 to 1.

(Chart courtesy of tradeMONSTER)