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Seagate Technology: Bullish Option Traders Circle the Stock

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STX optimists are purchasing soon-to-expire call options.

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The shares of Seagate Technology PLC (NASDAQ:STX) are comfortably higher this afternoon, and option traders think the best is yet to come for the stock. As of 1:37 p.m. EDT, the hard-disk drive maker has seen around 30,000 calls cross the tape -- more than three times its typical intraday volume. On the flip side, just over 9,800 STX puts have changed hands.

Digging deeper, speculators are anticipating a short-term burst for Seagate Technology, as evidenced by the affinity for weekly calls. Most popular are the weekly 3/28 36- and 36.50-strike calls, which have seen around 7,400 and 6,000 contracts traded, respectively. Volume has surpassed open interest at both strikes, and the bulk of the calls have crossed on the ask side, pointing to buy-to-open volume.

The volume-weighted average price (VWAP) of the 36-strike calls is $0.43, meaning the buyers will begin to profit if STX conquers the $36.43 level (strike price plus VWAP) by Thursday's closing bell, when the options expire. The VWAP of the 36.50-strike calls, meanwhile, is $0.26, indicating a breakeven of $36.76 -- just 2.7% from Seagate Technology's current share price. However, should STX stall beneath the strikes, the most the buyers can lose is the initial premium paid for the calls.

Speaking of STX's price action, the security has added roughly 3.1% at last check, thanks to an encouraging analyst note. Specifically, Brean Capital said the company's current-quarter per-share earnings could come in well beyond Wall Street's expectations. The bullish nod is relatively rare for STX, which has earned just three "strong buy" ratings, compared to 14 "holds" and three "sell" or worse suggestions. Plus, the consensus 12-month price target among analysts stands at $34.88, representing a discount to STX's current price.

On the charts, the shares of Seagate Technology PLC have outperformed the S&P 500 Index (INDEXSP:.INX) by almost 8 percentage points in the past month, advancing more than 17% in 2013. Should the stock extend its upward momentum, a round of upgrades and/or price-target hikes could stoke the contrarian flames.

This article by Andrea Kramer was originally published on Schaeffer's Investment Research.

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Twitter: @schaeffers
No positions in stocks mentioned.
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