Capitalize on Fusion IO Trending Well

Yes, another FIO trade -- we know.  This stock has recovered from an August low around $10.50, to current levels around $14.00, based on a few factors.  

1. They recently held an investor day to share updates on technology and the future with analyts
2. There is continued speculation that Seagate (STX) should acquire FIO in responsed to Western Digital (WDC) buying Virident
3. Fusion IO is focused on diversifying its customer base away from Facebook and Apple.

The upcoming October 21 earnings release will be a pivotal one, and we'll be able to gague how the new management team is doing with the turnaround and execution.  In the meantime, we see an opportunity that we just can't pass up.  The stock has also put in a good base at $13, which it has bounced off of 7 times since May 2013, indicating strong support and buying at that level.

Current with FIO trading at right around $14.00, we can enter into a synthetic bullish position by selling a March 2014 $14 Put for $2.45, and buying a March 2014 $14 Call for $2.60.  This trade will cost us $15 per set, and the upside isn't limited if FIO moves higher.  However, the risk is that if FIO trends lower we will be forced to buy the stock if it drops below $11.55 before March expiration.  Looking at the performance of the company since it has been publicly traded, we'd be glad to buy at $11.55 since the company is still growing at healthy double digits, and execution seems to be improving.  This trade also gives us exposure to the company's upside if there happens to be an acquisition over the next 6 months.  This isn't a risk-free trade as there is some downside risk, so you need to be ok with the prospect of purchasing this stock at $14 (or a net of $11.55 when you subtract the put premium) if things don't go well.  When calculating how many of these options you should execute, make sure you're setting aside $1400 of cash or margin for each set in case you have to buy the stock.  You can always buy the put back and close that position to negate the risk of 'getting put the stock', and being forced to buy if it drops below $11.55.