STEC Rises, Looks to Gap Fill

Shares of STEC (NASDAQ: STEC) are on the rise this morning; currently, shares are higher by 2.64%, trading at $10.12. The stock has been consolidating above the $8.30 level for the past two months following a massive gap lower in late-July.

Shares have recently managed to regain the 20-day moving average and now have their sights set on the 50-day moving average (~$11.00). This would also put STEC above the $10.58 post-gap high; if volume continues to trade above average, it is highly likely that a strong short-covering rally will occur.

This potential price target on this rally would be the pre-gap prices of $15.92-$17.00, which would be a massive score given the current trade price. Note that STEC has 26.86% short interest.

The best way to play this could be with options. By simply buying the Nov2011 $10.00 call outright you would be playing the name from the long side, while having minimal dollars on the table should shares fail to break out, into the gap. You would then be able to close the position at a minimal loss.

By buying the call option, you would also have the opportunity to sell upside calls against your strike on a rally to further pad your pockets.

STEC, Inc. is a global provider of enterprise-class Flash-based solid-state drives that are designed for enterprise-class hardware that companies use to retain and access their critical data.