Market News

January 8, 2013  Tue 11:33 AM CT

Tesoro has been pulling back, and investors are afraid that the slide may continue.

optionMONSTER's Depth Charge tracking program detected the purchase of about 10,000 February 40 puts, most of which priced for $1.60. The volume was 19 times the strike's open interest at the start of the session, clearly indicating that this is a new position.

Those contracts lock in the price where shares can be sold in the oil refiner. Given their low price, that gives them the potential to generate significant leverage relative to the declines in the stock.

TSO is up 1.54 percent to $40.84 in early afternoon trading. The stock doubled between June and earlier this month but has been falling over the last week.

Today's downside trades are probably the work of an investor who owns shares and wants to protect that position. Protective contracts let him or her be compensated in the event of a drop, saving him or her the difficulty of exiting and re-entering the position. (See our Education section)

Total option volume in TSO is 6 times greater than average so far today, with puts outnumbering calls by 8 to 1.
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Using puts to BUY stock

Puts are an options contract that gives buyers the right to sell their stock for a set price on or before a future date. However, puts can also be an effective way to BUY stock.

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