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Investor rolls front-month call position out to later series, maintains bullishness
Related Symbols: ADP
Automatic Data Processing Inc. (ADP) did not announce any news today, and the company is due to announce earnings on April 27 before the market opens. While the market anticipates earnings of 78 cents per share, at least one option investor is calling for further upside in the stock throughout the next month prior to the earnings release.
ADP shares have dropped 17 cents to $43.76 so far today. The stock reached a 52-week high of $44.50 in November, and dipped to a recent low of $40 last month. Options action during today’s sessions suggests an investor expects even further upside during the near-term.
Around 11:02 a.m. EST, the front-month March 43 calls and the April 45 calls crossed the tape 5,000 times each. It looks like an investor sold to close the in-the-money March 43 calls and bought to open the out-of-the-money April 45 calls on a bullish bet that the stock could rally another 3% by April options expiration, or that the stock could rally before expiry and provide a chance to sell them back for a profit. The investor collected around 50 cents per roll, despite maintaining a bullish position in ADP. The March 43 calls traded for 95 cents per contract, while the April 45 calls crossed at 45 cents per contract.
Implied volatility of the front-month options and the April 45 calls is roughly 16%, compared to a 30-day historical volatility of 17%. The March 43 calls, home to current open interest of more than 7,000 contracts, have dropped ten cents on the day, while the April 45 calls are down five cents on the day and are home to current open interest of 176 contracts.
Though ADP shares are slightly down on the day, at least one investor might not be finished with the stock and rolled a long position out and up.
For a visual evaluation of the risk/reward dynamics of this bullish roll, open a free virtual trading account and discover trading tools that will make your trading easier.
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