Options Trading News

January 24, 2014  Fri 12:20 PM CT

Talisman Energy has been consolidating for years, and now the bulls are showing up.

optionMONSTER's Heat Seeker monitoring program detected the purchase of 6,300 January 2015 13 calls for $0.80 and the sale of an equal number of January 2015 10 puts for $0.80. Volume was about triple the previous open interest at each strike, indicating that new positions were initiated.

Owning calls gives the investor the right to get long, while selling puts generates income but creates an obligation to buy a stock if it falls. Combining the two strategies is highly bullish and similar to holding common equity. The main difference is that it's much cheaper.

Today's trade had no net cost and will perform similarly to holding 403,200 shares. That correlation will increase if TLM makes a sharp move higher or lower. It will slowly lose value if the stock remains between $10 and $13. (See our Education section for more on how time affects option prices.)

TLM is down 2.4 percent to $11.40 in afternoon trading and has mostly been trapped between $11 and $13 since October 2012. Earnings have missed expectations in recent quarters, but the oil and natural-gas company is trying to improve results by managing costs and increasing shale production in the United States.

Total option volume is 6 times greater than average so far today, according to the Depth Charge.
Share this article with your friends


Premium Services

Education & Strategy

The art of trading

As I stated in last week's article, a break out or a break down needs to have a couple things happen before it is considered a confirmed break out or break down. The only problem is that in today's market where things move much more quicker than they did just a few years ago, two days could wind up being the majority of the expected movement, if not the whole movement.

View more education articles »