Options Trading News

October 10, 2012  Wed 5:12 AM CT

Electricity company NRG Energy has been strong for months, and the bulls came back to the name yesterday.

optionMONSTER's tracking programs showed the purchase of almost 11,000 November 25 calls for $0.35. That volume dwarfed open interest of just 25 contracts in the strike at the beginning of the day, clearly indicating new buying.

Calls lock in the price where holders can buy shares in the company, so they can generate significant leverage in the event of a rally. But these options will expire worthless if no move occurs. (See our Education section)

NRG rose 0.61 percent to $23.09 yesterday and is up 36 percent in the last three months. The stock began rallying from long-term lows in late June, then accelerated the next month after announcing that it would merge with Genon Energy to lower costs.

The company continues to trade for less than book value, which could make some investors think that it's still cheap.

Overall option volume was 5 times greater than average in the session, according to our data systems. Calls outnumbered puts by a bullish 20-to-1 ratio.

(A version of this post appeared on InsideOptions Pro yesterday.)
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