ConocoPhillips draws cautious trade
David Russell | [email protected]
optionMONSTER's Depth Charge monitoring system detected the purchase of 10,000 November 60 puts for $2.16 and the sale of 10,000 November 50 puts for $0.46. Volume was more than 9 times open interest at each strike, showing that this is new positioning.
Known as a bearish put spread, the trade cost $1.70 and will earn a maximum profit of 488 percent if the oil company closes at or below $50 on expiration. (See our Education section)
COP rose 1.14 percent to $64.03 yesterday. The stock had been trapped below $62 ever since the market crashed in 2008, and last week it bounced above that price. Now traders will look for the old resistance level to become support.
Yesterday's put spread establishes insurance if COP crashes below $60. It was probably purchased by an investor looking to hedge a long position in the stock.
Energy has lagged the broader market on a year-to-date basis but has grown increasingly bullish in the last week as traders position for upside in names such as Parker Drilling, Apache, Kinder Morgan, and Denbury Resources.
COP also attracted call buying yesterday. Total option volume in the name was 6 times greater than average.
Disclosure: I own COP shares.