Chris Tyler, Optionetics.com
February 28, 2011

It’s been a good while since directional bulls could revel optimistically about the prospects of Dell (DELL). However, following a technically dismal, mostly stagnant 2010, a well-received earnings beat two weeks back and embracing the idea all trends do eventually come to an end—2011 is shaping up for the computing giant.

In Monday’s session, Dell made a rare appearance atop the NASDAQ 100’s Percentage Leaders board with gains of 4.63%. The move which included heavier and above average volume tested its post-earnings highs and sets up a potential breakout from a “high handle” pattern which held support above its 2010 weekly cup or “W” shaped base.

No doubt, today’s move in Dell could have benefitted from the broader market’s rally own end-of-month gainer of 0.56% and second session of higher prices following a short-term oversold condition. Nonetheless, the price action also caught the eyes and wallets of option traders appearing predisposed to either rolling bullish positions or opening afresh.

Figure 1: Dell (DELL) Weekly Bullish

Most active by a fairly wide margin, the March 16 call finished the session with volume of about 9,300. The 14s were the second most traded on nearly 5,900 contracts. With the latter and lower strike priced for $1.87, essentially a proxy for stock and substantially larger open interest; it’s likely some rolling, possibly ratioed, while still securing a guaranteed profit, was one popular trade.

Of course too, rolling out and up, with 18 days left in the March contract, is always “an option” which may have been heeded too. Call volume across-the-board was significant and outpaced put activity by a margin of two-to-one with total volume swelling to nearly double its daily average on 51,000 contracts.

Figure 2: Illustrated 5x Dell (DELL) May 16 Call

One spot which saw decent volume of nearly 2,000 contracts and looks to fit in a bit more conservatively than PS’ EW TAPP is the at-the-money May 16 call. Priced at $0.81 per contract, a long call position will double in price by expiration if shares can rally by just more than 11% come expiration 81 calendar days away and retest its slightly higher April highs near 17.50. And if DELL were to rally strongly with time still on the clock; those same bulls of course would find themselves in a more profitable position due to time value and ability to embrace a second chance or at least something other than the current wisdom of “Dude, it’s a Sell.”

Chris Tyler
Senior Options Writer, former Market Maker & fulltime Option Hedge Hog Advocate
Optionetics.com ~ Your Options Education Site