Alcatel Lucent SA (ALU) is a French company that offers solutions for voice, video and data services to businesses and governments. The company’s stock is currently trading around $3.75 in a 52 week range of $0.97-$4.02. The stock has been outperforming the market this year, rallying nearly 170% year to date and over 250% in the past 12 months. ALU options order flow suggests that this trend could continue as we have seen massive bullish bets being placed in ALU this week. In yesterday’s trading session we saw a trader sell 30,000 ALU Jan 3.5 puts for $0.35. This is an extremely bullish trade and obligates this put seller to buy 3 million shares of stock below $3.50. This gives us a great signal to get long ALU. We are looking to set up a covered call on ALU. A covered call will allow us to take the same view as the institutional trader while setting up a great return potential.
Trade: Buying 100 shares of ALU at $3.75 for every Jan 3.5 Call sold for $0.65
Reward: $40 per 1 lot
Breakeven: $3.10
If shares of ALU close above $3.50 on January expiration this trade will net its maximum potential profit of $40 per 1 lot. This trade will also be profitable anywhere above $3.10. Should the stock close above $3.50 on expiration this trade will net an annualized return of 61.80%.
