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November 22, 2013  Fri 12:20 PM CT

Money has been coming back to oil and gas recently, and now option traders are targeting in Miller Energy Resources.

optionMONSTER's Heat Seeker monitoring program detected the purchase of 2,000 February 7.50 calls for $0.70 and the sale of an equal number of February 10 calls for $0.15. Volume is below open interest at the lower strike, so there are two possible explanations for the activity.

One is that the investor owns shares in the small-cap company and had sold the 7.50s as part of a covered-call strategy. He or she may have bought them back today and rolled them to the higher strike, raising the level at which the stock must be sold by $2.50.

Alternatively, both halves of the trade may have been opened as new positions. In that case the strategy is a bullish call spread with the potential to earn 355 percent on a move to $10. Either way, the trader paid $0.55 and is looking for upside in the name. (See our Education section)

MILL is rallying 10.97 percent to $7.18 in afternoon trading after announcing that it brought wells online in Alaska that had previously been flooded with water. Management also said overall sales doubled in the last year on a per-barrel basis. In addition, shares trade at a very small premium to book value.

The energy sector saw lots of bullish activity in September before slowing in October, but it is picking up again as names such as calls hit in names such as Newfield Exploration, Schlumberger, and W&T Offshore.

Overall option volume in MILL is more than 9 times greater than average so far today, according to the Heat Seeker. Overall calls account for about 90 percent of the total.
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