Unusual Options Activity: Adobe (ADBE)

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  • Software giant Adobe (ADBE) has been trading in a range for the past few months. The recent market weakness has sent shares towards the lower end of its range, as well as its 200-day moving average. At least one trader is betting that shares will bounce higher.

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  • That’s based on the June $420 call options. Over 5,010 contracts traded, a 36-fold rise from the prior open interest of 138. The option expires in 109 days.

    The trader paid about $61 for the options. As shares are currently around $462, the option is about $42 in-the-money already, accounting for a large chunk of the option’s price.

    The company has been a strong performer in the past year, outpacing the S&P 500 Index by about 10 points. With double-digit revenue growth, triple-digit earnings growth, and a fat 41 percent profit margin, shares look attractive at current levels.

    Action to take: The June call option is attractive given its timeframe. As an in-the-money trade, it’s likely to hold on to considerable value, and should move higher dollar for dollar with shares. That can likely lead to mid double-digit gains in the coming months.

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  • Traders looking for a directional bet here could buy the June $480 calls as well, which trade for about $28.15. That’s a much lower price with higher return potential, but could also lose money if shares don’t move in-the-money.