Traders position for Exco breakout
David Russell | [email protected]
optionMONSTER's Heat Seeker monitoring program detected the purchase of some 3,700 August 8 calls yesterday, most of which priced for $0.75 and $0.80. Volume was almost triple the previous open interest at the strike, so this is fresh buying.
These long calls lock in the price where shares can be purchased in the Dallas-based oil company. Investors buy the options to prevent to generate leverage, but the contracts can expire worthless without a rally. Yesterday's calls are especially interesting because they are in the money, making them track the stock price closely.
As a result, a move of roughly 10 percent in the shares could double the value of the calls. (See our Education section for more on the use of leverage in options.)
XCO fell 1.51 percent to $8.47 yesterday. It lost more than two-thirds of its value in 2011 and early 2012 but has been moving sideways since. The stock is now back around the same $8.60 level where it peaked in May, which could make some traders expect a big move if resistance is broken.
Total option volume was 6 times greater than average in the session, according to the Heat Seeker. Calls outnumbered puts by more than 4 to 1.