Unusual Options Activity: Automatic Data Processing (ADP)

Payroll processing company Automatic Data Processing (ADP) is up 15 percent over the past year, slightly underperforming the overall stock market. One trader sees further upside in the months ahead.

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  • That’s based on the April $270 calls. With 49 days until expiration, 3,731 contracts traded compared to a prior open interest of 108, for a 35-fold rise in volume on the trade. The buyer of the calls paid $0.65 to make the bullish bet.

    ADP shares recently traded for about $251, so they would need to rise by $19, or just under 8 percent, for the option to move in-the-money. The strike price is slightly over ADP’s 52-week high of $256.84.

    Shares have sharply pulled back from that 52-week high in recent sessions, albeit on no major news. ADP last reported earnings about a month ago, and reported strong numbers.

    A potential rebound from the recent selloff looks likely in the weeks ahead.

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  • Action to take: Investors may like shares here, or on future pullbacks.. ADP pays a 2.2 percent dividend yield and has a history of increasing its dividend over time.

    For traders, the April $270 calls are well positioned for a resumption of the recent uptrend in the coming months.

    The option is inexpensive enough to see mid-to-high double-digit returns on a push higher. Traders may want to take a quick profit on a one-day jump in shares.


    Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any company mentioned in this article.

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