Cybersecurity software company Rapid7 Inc (RPD) has seen shares rally more than 50 percent off of their lows set back in November. One trader sees a further rally in the months ahead.
That’s based on the August $55 calls. With 100 days until expiration, 5,327 contracts traded compared to a prior open interest of 191, for a 28-fold rise in volume on the trade. The buyer of the calls paid $5.67 to make the bullish bet.
Shares recently went for about $47, so they would need to rise $8, or about 17 percent, for the option to move in-the-money. The $55 strike price of the options is still well off the stock’s 52-week high of $74.88.
Although the company grew revenues by 22 percent in the past year, the company has been losing money. While shares are still down about 50 percent from their peak valuation last year, the company’s forward valuation has substantially improved from 11,000 forward earnings estimates to just 55.
Action to take: While things look dicey operationally, they’re improving. And that’s reflected in the company’s rising share price. Shares can likely continue moving higher in time, making them a speculative buy. However, investors won’t get a dividend payment with this early-stage play.
For traders, the August $55 calls play to the current uptrend in shares quite well, and can likely deliver mid-double-digit gains in the next few months. Traders may want to use down days to buy more contracts, and use up days for shares to take profits.
Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any of the companies mentioned in this article.