Monkey Around With GLW Calls

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Who would have thought that a technology invented almost 50 years ago would just be catching on today?

Corning Incorporated (NYSE: GLW) has been sitting on “Gorilla Glass” since the early 1960s. While the company failed to find a commercial application for this incredibly strong and scratch-resistant glass, a prediction inside an AP story notes that some think this could now become the second largest business line at Corning over the next half-decade.

And if there isn’t an opportunity for speculative option traders that use options trading information, then I’m a monkey’s uncle … or a gorilla’s uncle.

Corning’s Gorilla Glass is far superior to its competitors’ products, and it appears to have a mega-growth opportunity in touch-screen devices, as well as high-end TVs and other appliances. The big market seems to be flat panel TVs, which will consist of just a piece of Gorilla Glass with no protective barriers.

It can also act as an invisible protective shield for the screens of cell phones and other mobile devices, which is only a market of about 40 million. So if you’ve ever dropped your cell phone or had a mishap moving your LCD TV, you can see the value of this ultra-strong glass. 

This news comes at a time when Corning’s stock has been range-bound despite strong demand. 

GLW gained more than 5% on Monday, based partly on this exposure, and following an earnings report last week of gains of some 49% and revenues up 23%. Shares were at $17.66 after the report, a loss of 2%. But Monday was a strong day for technology and took the stock up to $19.15. The shares are currently down about 1.5% at $18.86, as Monday’s euphoria might have been too much to sustain. Monday also brought active options trading with more than 12,000 August call options trading.

Before the Great Recession kicked into full force, Corning had a trading range of $20 to $25. If Corning shares rally further, there will likely be more and more bets that Corning will have a real winner on its hands with Gorilla Glass.

We don’t care about the relatively safe $20 strike contracts. With a story like this, you have to speculate. So we’re looking out to November, and getting close to a 1% rule (premium versus share price) with the GLW NOV 23 Calls at 20 cents per contract (offer was 22 cents to 23 cents on Monday).

This appears to be a popular strategy, because there were more than 7,000 contracts in both the $22 and $23 strikes traded on Monday. That is about 4.5 times the entire combined open interest of the two contracts. So far, the trading is muted Tuesday, as you might expect with any pullback.

The November options should not see any significant price compression until mid-September. At that point, we will have a clearer picture as to whether Corning has a real shot at turning Gorilla into Shinola.

If shares are anywhere close to today’s prices or a tad higher by mid-September, then the losses should be less than half of that low premium.

If Gorilla glass looks like it has massive promise and does not distract the company from other efforts, then those calls could have exponential upside from that 20-cent price seen on Tuesday.

At $18.86, GLW’s 52-week trading range is $14.14 to $21.10. Keep in mind that the company’s market cap is over $29 billion, so you have to be realistic about how much of a move this stock can have in any given three-month period.

Follow Jon Ogg on Twitter @jonogg.

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Article printed from InvestorPlace Media, https://investorplace.com/2010/08/monkey-around-with-glw-calls/.

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