By David Russell
Navistar (NYSE:NAV) bounced hard in late June, and the bulls are looking for more. Our Heat Seeker tracking system detected a surge of activity in the January 70 and 75 calls, with more than 5,900 changing hands in each strike at about the same time.
While this trading isn't completely clear, it appears that the January 70s were bought for $1.90 and the higher-strike contracts were sold for $1.05 and $1.10. That would be a bullish call spread, with the potential to earn a maximum profit of 506 percent if the truck maker closes at or above $75 on expiration -- the same level where it peaked after getting relisted in mid-2008.
It is also possible that today's call trades were both purchases instead of a spread. That would require the outlay of more than three times more capital, and be much more bullish.
NAV is down 2.4 percent to $56.43 in mid-day trading. It had rallied more than 70 percent between September and April, then fell hard along with the rest of the market before rebounding sharply off support at the $52 level.
The last earnings report on June 7 missed forecasts because of a parts shortage, but management was still bullish over the longer term and raised full-year guidance.
Overall option volume in the name is 22 times greater than average today, with calls outnumbering puts by more than 140 to 1.