Upside strategy scores big in Oclaro

Networking-technology company Oclaro is trading at two-month highs, rewarding a highly bullish strategy.

On May 3, Investitute’s market scanners showed that 2,000 July $8 calls were purchased for $0.68 while 2,000 June $7 puts were sold for $0.33. The net cost of the trade was $0.35, with shares at $7.62.

Today the calls traded for $1.80 and the puts for $0.03, representing a profit of more than 400 percent. The stock was up 26 percent in the same time frame, underscoring the kind of leverage that can be obtained through options.

Such combination trades are especially bullish because a rally boosts the price of the long calls while decreasing the value of the puts that were sold. Calls lock in the price where the stock can be purchased, gaining with a rally and providing leverage to the underlying shares with limited risk. The sale of the puts reduces the overall cost of the strategy but obligates the trader to sell shares at a certain price if they fall.

The trade was opened a day after the optimal-network equipment maker reported earnings, when it initially pulled back before rebounding sharply. OCLR rose 3.54 percent today to $9.64, its highest close since March 31.