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Alcatel Lucent SA Gets Big Traders' Attention


ALU's breaking news and recent technicals prompted a call buying rush.

Alcatel Lucent SA (NYSE:ALU) was soaring this morning, up almost 7% to trade at $2.00 after revealing a comprehensive restructuring and cost-cutting plan. During the surge, the telecom firm also touched a 52-week high, a cent higher than its current perch. All this activity prompted BMO to raise its price target on ALU to $3 from $2, following in the footsteps of Citigroup.

The news had an effect in Alcatel Lucent's options pits, as well. As of the time of this writing, roughly 32,000 calls have traded so far, which is 26 times the expected intraday volume. According to Trade-Alert, the biggest mover by far is the July 2 call, thanks to a block of 25,000 contracts that an investor bought to open for $0.10 per contract. The trader will profit from the at-the-money call in the event that ALU shares advance to $2.10 (strike price plus net debit) by July 19, when back-month options expire.

Like last week's group of long-term bulls, the bullish speculator is likely banking on Alcatel's recent technical strength to continue carrying it to new annual heights. The shares have rallied nearly 52% since tagging a recent intraday low of $1.31 on May 6, and they continue to be propelled upward by their 10-day moving average. Additionally, over roughly the same time span (i.e., two months), ALU has outperformed the broader S&P 500 (INDEXSP:.INX) by an impressive 35 percentage points.

Not everyone is on board Alcatel's bullish bandwagon, however. In spite of the recent upgrades we mentioned earlier, five out of eight analysts covering the stock still rate it "hold" or worse.

Whether the bulls or the bears are right, however, this morning's big trader can lose no more than the premium paid to initiate his long call position -- to be precise, that's $250,000 (25,000 contracts * 100 shares per contract * 0.10 cost per contract).

This article by Alex Eppstein was originally published on Schaeffer's Investment Research.

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