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July 5, 2013  Fri 12:20 PM CT

DNR: SEE CHART GET CHAIN FIND STRATEGIES
At least one trade apparently believes that Denbury Resources will rebound in the next six weeks.

About 5,000 August 18 calls were purchased in 5 minutes today, going for $0.50 to $0.60, according to optionMONSTER's Heat Seeker tracking system. The volume was well above the strike's open interest of 1,495 contracts before the session began, indicating that this is fresh buying.

These long calls, which lock in the purchase price for the stock, are looking for DNR to gain roughly 6 percent or more by expiration in mid-August. If the stock remains below the $18 strike price, the contracts will expire worthless. (See our Education section)

DNR is up 0.87 percent to $17.41 in afternoon trading. The oil and natural-gas company pulled back after running up to a 52-week high of $19.65 on May 21, but it hit support at the $16.50 level and has been trading in an increasingly tight range since then.

The August 18 call buying has made up almost all of today's total option volume in DNR so far today, which is double its daily average for the last month. Only 10 puts have changed hands in the session.
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As discussed last week, when using the Stock Replacement Strategy to replace a stock position to trade direction, we want to use an option that has very similar characteristics to the stock. We talked about using the deep in-the-money, 80 to 85 delta option that is similar in the Greeks and has relatively little extrinsic value which tends to work against us in stock directional trading.

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