Mellanox Technologies (Nasdaq: MLNX, 42.58) is headquartered in Sunnyvale, California and Yokneam, Israel, and provides ethernet and infiniband switches for servers and storage used in enterprise data centers.
MLNX shares are up just over 8% in 2014, performing comparably to the broader market. Price action has been choppy, with shares trading in a 52-week range of $30.58-$46.04.
The Trade
Twenty-six minutes in Monday’s session, we saw a trader come in and buy 1,985 MLNX Oct 44 Calls for $0.85 while the stock was trading $42.20. As with many of the more interesting orders we see, the total premium outlay for this trade wasn’t enormous from an institutional perspective – only $168, 275. However, these options have the potential to control nearly 200,000 MLNX shares – nearly a third of the average daily stock volume.
800,000 shares of MLNX traded yesterday – roughly a third more than the average daily volume. The Oct 44 call line traded as high as $1.45 and closed Monday’s session at $1.15.
MLNX shares are trading $44.00 premarket at the time of writing, as it would appear this call buyer will see his position continue to profit – bringing me to an important point.
Risk Management
Smart options traders pre-define risk, either as a dollar amount or a percentage of their book. As a position becomes more and more profitable, it accounts for a greater percentage of your trading portfolio. At this point, profit taking becomes an essential part of a sound risk management strategy.
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