One Trader's Options Bet On ZAGG Looks Like It May Pay Off

Zagg Inc (NASDAQ: ZAGG) shares were up more than 5.2 percent Wednesday morning after the company reported Q1 revenue ahead of its previous guidance.

For one trader in particular, the bullish earnings move may be an extremely profitable one if the stock picks up momentum.

On Tuesday, Benzinga Pro issued an options alert notifying subscribers of an unusually large Zagg call purchase less than an hour before the market close:

3:18:30 pm: ZAGG ZAGG May 8.0 Calls Sweep: 1000 @ ASK $0.35: 1020 traded vs 222 OI: Earnings today After Close $7.55 Ref

The call buyer was betting that Zagg shares would make it to at least $8.35 by May expiration, and Zagg knocked out much of that gain in a single day. Stock traders that piggy-backed on the option buyer’s bullish bet were rewarded with a quick chance at profits on Wednesday morning.

Related Link: Benzinga's Option Alert Recap From May 2

Options traders are typically seen as more sophisticated and advanced than the average stock trader. That generalization is particularly considered to be true when it comes to options traders who place extremely large orders. In other words, when somebody makes a huge bet in the options market that a stock is going to go up or down, stock traders take it seriously.

Of course, large options buyers ahead of a major catalyst such as an earnings report aren’t always right about the direction a stock will move. Benzinga Pro also reported bullish option-buying activity ahead of Mattel, Inc. (NASDAQ: MAT)’s disappointing Q1 earnings report that sent shares plummeting.

Now that the dust has settled on Zagg’s Q1, Wunderlich analyst Rommel Dionisio believed the company is well-positioned to benefit from major new phone introductions from both Apple Inc (NASDAQ: AAPL) and Samsung (OTC: SSNLF).

“Given improving earnings visibility, particularly with the expected new form factor mobile phone from Apple coming this fall, we are raising our price target from $8 to $10, derived using an EV/2017E EBITDA multiple of 6x on our increased forecasts,” Dionisio explained.

Wunderlich maintains a Buy rating for Zagg. The stock traded recently at $7.62, up less than 1 percent after hitting an intraday high of $8.18.

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