Procera Networks, Inc (PKT) provides network operators with enforcement solutions to help them gain control of their networks. The company’s stock is currently trading around $14.45 in a 52 week range of $10.12-$24.34. The stock has been weak this year, selling off over 18% year to date. Despite the weakness in the stock, options action suggests that there could be some upside in PKT through November expiration. The largest open interest in any November option line in PKT is in the November 15 puts. We know that most of this open interest comes from a put seller. The seller of these puts made a high conviction bullish bet on PKT and by selling those puts is expressing a strong belief the stock will be above $15.00 on November expiration. We believe that this provides us with an opportunity for a covered call in PKT.
Trade: Buying 100 Shares of PKT stock at $14.45 for every Nov 15 call sold at $0.60.
Reward: $185 per 1 lot
Breakeven: $13.85
If shares of PKT are above $15.00 on November expiration this trade will net its maximum potential profit of $185 per 1 lot. This trade will also make a profit anywhere above $13.85. Should the stock close above $15.00 on expiration this trade will net an annualized return of 220%.
