Options Trading News

October 3, 2013  Thu 4:14 AM CT

optionMONSTER's tracking systems nailed the move in Talisman Energy earlier this week, and the bulls came back to the name yesterday.

On Tuesday we cited the purchase of January 14 calls in the Canadian oil driller for $0.35. The stock pushed higher yesterday, and those calls almost doubled to $0.60 by the early afternoon.

Then the bulls went right back to work, this time targeting the January contracts. optionMONSTER's Heat Seeker scanners showed that a trader bought 7,000 January 14 calls and sold a matching number of the January 11 puts yesterday.

He or she paid only $0.44 for the long calls and collected $0.48 selling the puts, resulting in a small credit. A block 6,000 October 13 calls were sold around the same time for $0.11, but volume was below open interest in those. So it appears that the investor exited a long position in October and now wants to ride TLM into early next year.

The new January position controls the equivalent of about 360,000 shares with no up-front cost. That will increase to 700,000 shares if the stock is above $14 on expiration. But the investor also faces significant downside risk because of the short puts, which would require that the stock be purchased if it falls below $11. (See our Education section)

TLM rose 3.16 percent to $12.39 yesterday and is up 16 percent in the last month. Nonetheless, it has gone nowhere since late 2011 and is now in the middle of a long-term trading range.

Total option volume was 9 times greater than average in the name yesterday, according to the Heat Seeker.
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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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