Options Trading News

June 20, 2013  Thu 3:47 AM CT

One investor wants protection in Rex Energy with the stock at its highest price in almost five years.

optionMONSTER's Depth Charge monitoring program detected the purchase of 1,000 December 17.50 puts for $1.90 and the sale of an equal number of December 15 puts for $0.75. The trader also sold the December 20 calls for $1.48. Volume was more than quadruple open interest at all three strikes, indicating that new positions were initiated.

The strategy combines elements of a collar with a put spread to hedge a long position in the stock. He or she collected a credit of $0.33 and stands to earn an additional $2.50 if the stock closes at or below $17.50 on expiration.

The investor is probably using it to hedge a long position in the shares, which are back to levels last seen in October 2008. He or she has also agreed to forfeit any gains over $20 because they're short calls. (See our Education section)

REXX fell 0.71 percent to $18.14 yesterday but is up 39 percent so far this year. With its focus on the Marcellus and Utica shale formations in Pennsylvania and Ohio, the company has benefited from the renaissance of energy production sweeping the United States. Revenue more than doubled between 2010 and 2012.

The three-way trade pushed overall option volume in REXX to 49 times greater than average in the session, according to the Depth Charge. 
Share this article with your friends



The fastest money in the market
View full report »

Premium Services

Upcoming Webinar:

Using Options For Income


Jon Najarian and Adam Mesh of Options Wealth Machine discuss a detailed strategy utilizing credit spreads to generate income, and how any level of trader can use this simple trading technique.

Education & Strategy

Sweet Spot Exceptions

As discussed last week, when using the Stock Replacement Strategy to replace a stock position to trade direction, we want to use an option that has very similar characteristics to the stock. We talked about using the deep in-the-money, 80 to 85 delta option that is similar in the Greeks and has relatively little extrinsic value which tends to work against us in stock directional trading.

View more education articles »