How one bull is getting long Encana
David Russell | firstname.lastname@example.org
optionMONSTER's monitoring programs detected the sale of about 4,000 August 23 puts for an average premium of $0.94, plus the purchase of about 3,000 August 22 puts for $0.40. Volume was more than 4 times the open interest at each strike, indicating that this is new activity.
ECA is down 1.31 percent to $22.49 in morning trading but is up 14 percent in the last month. The Canadian natural-gas company has been climbing along with other energy names as investors return to a sector that had lagged earlier in the year amid worries about the global economy.
Today's option trade generated a credit of about $256,000 and is unusual because it used in-the-money puts. If ECA stays below $23 through the end of next week, the trader will be required to buy shares for that price. But most of the position will also be hedged against a major drop because he or she owns the 22s.
If ECA rallies above $23, both contracts will expire worthless and the trader will keep the $256,000 as profit. (See our Education section for more on credit spreads.)
The trade drove overall option volume in the name to twice the daily average.