How traders are hedging Concho
David Russell | [email protected]
optionMONSTER's Depth Charge tracking program detected the purchase of 1,880 October 100 puts for $1.93 and the sale of an equal number of October 95 puts for $0.73. Volume was below open interest in the 95s, so there are two possible explanations for the activity.
One is that the investor previously owned puts at the lower strike to protect a long position in the shares and has now rolled it up. Alternatively, both halves of the trade may have been opened, in which case the trade is a vertical spread that will earn profit of 317 percent on a drop to $95 or lower by expiration.
Either way, the position cost $1.20 to open and stands to profit to the downside. (See our Education section for more on how to use options as hedging instruments.)
CXO is up 1.47 percent to $104.66 in afternoon trading and has risen 21 percent in the last three months. The company focuses on the Permian Basin in west Texas and eastern New Mexico, and it expects production growth to accelerate to 12 percent annually in coming years versus a 7 percent rate since 2007.
It's been running along with other domestic energy companies as investors grow increasingly enthusiastic about a renaissance in energy production within the United States. (See our researchLAB market scanner for more.)
Total option volume in CXO is triple the daily average so far today, according to Depth Charge. Puts outnumber calls by almost 2 to 1.