Options Trading News

December 27, 2012  Thu 12:24 PM CT

Hercules Offshore has been ripping higher, and one investor is betting that the gains will keep on coming.

optionMONSTER's Heat Seeker monitoring system detected the purchase of 3,005 July 6 calls for $1.01 and the sale of an equal number of July 6 puts for $0.94. Volume was more than 18 times the previous open interest at each strike, so this is a new combination trade.

The resulting position is the equivalent of owning 300,000 shares in the energy-services company. But it cost just $0.07 to open--barely 1 percent of the stock price.

The position would succeed in a rally because the long calls and short puts would both gain value to the upside, while the opposite would be true if the stock falls. (See our Education section)

HERO is down 2.3 percent to $5.94 in afternoon trading but is up 35 percent in the last month. Buyers have been piling into the company after it reported a jump in business activity during November and received two upgrades in response. The move sent the shares back to levels last seen in mid-2011.

Today's bullish trade pushed total option volume to 16 times greater than average in the name so far today, according to the Heat Seeker.
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Education & Strategy


As we continue to discuss the Greeks, we come to the first of the strike based Greeks called Gamma. Gamma is known as the second derivative, while delta is the first.

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