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June 19, 2014  Thu 12:20 PM CT

CNP: SEE CHART GET CHAIN FIND STRATEGIES
For the second time this week, traders are looking for CenterPoint Energy to rally.

optionMONSTER's Heat Seeker monitoring program detected the purchase of 15,000 July 25 calls for $0.50. Roughly 12,000 July 23 calls were sold around the same time for $1.85 and $1.90, but volume was below open interest. This suggests that an existing long position was closed and rolled to the higher strike.

Long calls lock in the price where investors can buy a stock, letting them cheaply position for a rally. Capital can also be moved from one contract to another as shares advance. (See our Education section)

CNP is up 0.08 percent to $24.79 in afternoon trading and has risen 3 percent in the last week. The natural-gas and electricity company has been grinding higher in a tight range all year but started to break out on Monday as investors piled into the calls.

Other natural-gas names have also been coming to life as domestic production surges and attention turns to exports of the fuel. Related companies such as NiSource and Spectra Energy have been on our radar as well.

Total option volume CNP is 20 times greater than average so far today, according to the Heat Seeker. Calls outnumber puts by more than 300 to 1.
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As discussed last week, when using the Stock Replacement Strategy to replace a stock position to trade direction, we want to use an option that has very similar characteristics to the stock. We talked about using the deep in-the-money, 80 to 85 delta option that is similar in the Greeks and has relatively little extrinsic value which tends to work against us in stock directional trading.

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