Bulls look for gusher in Occidental
David Russell | [email protected]
optionMONSTER's Heat Seeker monitoring system detected the purchase of about 3,900 November 97.50 calls for $1.97 and the sale of a similar number of November 77.50 puts for $1.09. Volume was more than quadruple the previous open interest at each strike, indicating that new positions were initiated.
Owning calls locks in the price where shares can be purchased in the Los Angeles-based oil driller, while selling puts creates an obligation to buy them in the event of a pullback. Combining the two strategies results in a position that's similar to owning stock, but with the ability to generate massive leverage.
OXY rose 0.32 percent to $90.51 yesterday. It rallied sharply after a strong earnings report in late April but then stalled and has now pulled back to the same $89 area where it peaked in February. That could make some chart watchers think that it's trending higher.
Yesterday's trade cost roughly $343,000 to open and has a delta equivalency of owning 156,000 shares. That's a cost of barely $2 per share, a tiny fraction of its current value. The price of that leverage is the downside risk on the short puts if OXY tanks. (See our Education section)
Last year's schedule suggests company will report earnings in the final week of July, but it hasn't yet announced the timing.
Total option volume was twice the daily average in the session, according to the Heat Seeker.