Options Trading News

March 15, 2013  Fri 12:21 PM CT

The bulls are betting on a gusher in Cobalt International Energy.

optionMONSTER's Heat Seeker monitoring program detected the purchase of about 7,200 April 27.50 calls for $0.90 to $1 in volume that was more than double the previous open interest of 3,498 contracts. More than two-thirds of the contracts traded in a single block for $0.98.

These long calls lock in the price where investors can buy shares in the oil-exploration company, which operates offshore in the Gulf of Mexico and off the west coast of Africa. That will give them the ability to generate significant leverage in the event of a rally, but these options will expire worthless if the stock doesn't move by mid-April.

CIE is off fractionally at $26.78 in afternoon trading. The stock gapped higher on Dec. 5 after a big oil discovery in at its North Platte prospect in the Gulf of Mexico and has been consolidating since.

Today's activity suggests that investors think the stock will continue to press higher in the next five weeks. Using the options limits the amount of capital at risk, avoiding the difficulty of selling shares if they're wrong. (See our Education section for more ideas on managing positions.)

Some 8,600 contracts have traded in CIE so far today, more than twice the average volume. Calls outnumber puts by a bullish 33-to-1 ratio.
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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.

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