Something unusual is going on with EMC. Today gave clever traders an options setup that can be hard to find. It’s where the next strike on the front-month contract, this one being August, is “cheap” and moves 500% in a day. This story aired on today’s Fast Money so the trade is probably done, but it’s something to look for.

Today EMC was approaching $15 and the Calls were less than $1 after it had made nearly a $1 move. Some big institutional money wants EMC over $15. It traded seventeen times its average daily volume, according to Peter Najarian. This is rare for the options market with +100,000 contracts trading just today.

From MarketBeat:

“‘I can’t remember seeing a frenzy like this in a while,’ says Jon Najarian, co-founder of Optionmonster.com, who says that the large size of the trades — 5,000 to 10,000 contracts at once — suggests institutional activity, rather than retail investor speculation. Shares of the stock were lately up 6%.”

Today’s July 30th EMC Aug $15 Calls:

Open at $0.16

Close at $0.66

http://finance.yahoo.com/q/op?s=EMC

Now after Fast Money mentioned it the Bid in after-hours market is $0.89 which is a 550% one day move. Last month the $15 Calls also were the most popular strike with some 30,000 open contracts. Today the $16 Aug Calls opened at $0.05.

According to MarketBeat, “The company is scheduled to present at the Pacific Crest Securities technology conference in Vail, Colo. on August 4. Analysts have surmised that the company might want to spin off its remaining 85% stake in VMWare.”

Say you risk $500 and get 25 contracts at $0.20 and sell them at $1. That’s a 3:1 risk reward, and you walk away with $1,500 profit. [disclaimer: hypothetical idea not trading advice!]

There are strategies to spot these moves. TradeStation has chart based alerts that make this type of setup easier to catch. The basic charting method is to watch the 15min bars. You can see where price broke above the purple line of overhead resistance. Once price made a new three day high it accelerated the move up. With an alert or programmed trade these moves can be caught as they happen. There are lots of charts right now breaking out like this, but the options are $1-$3 per contract, not $0.16!

IVolatility.com has a neat tool. You can decide for yourself what you think the options are really worth.

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All trades, patterns, charts, systems, etc. discussed and the product materials are for illustrative purposes only and not to be construed as specific advisory recommendations. All ideas and material presented are entirely those of the author and do not necessarily reflect those of the publisher or gamingthemarket.com.