Shares of Honeywell (NYSE: HON) were up 37 cents Tuesday to $31.18. The company is set to announce earnings before the market opens on Monday July 27. At least one investor expressed a bullish view, buying six month call options looking for a potential bump in the stock.
Looking at the January 40 calls of 2010, we find that more than 15,000 traded Tuesday. Open interest in these calls was 3771 according to the Sidewinder report at www.ONN.tv. What is most noteworthy about this volume is that most of the activity was on the buy side, meaning there were more buyers of these calls than sellers.
The call options traded for 50 cents with the stock near $31.10. This computed to an implied volatility of 32 compared to a 63 day realized volatility of 41. At the price of 50 cents, the buyer needs the stock to be above $40.50 to be in the money at expiration, another 30% rally on top of the 34% move since its low close on March 9 of $23.23. HON has not traded above $40 since September of last year. Remember, though, this investor could also make money by selling out of the calls should they rally with the stock prior to expiration.
Call buying like this does not automatically mean that investors should run out and buy shares. But it is worth noting that there is at least one investor that could be betting on a positive earnings announcement to push the stock up.
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