optionMONSTER's Heat Seeker monitoring program detected the purchase of 5,000 January 60 calls in the contract-drilling company for $1.65 and the sale of an equal number of January 70 calls for $0.40. Volume exceeded open interest at each strike, indicating that new positions were initiated.
The trade cost $1.25 and will earn a maximum profit of 700 percent if the stock returns to $70 or higher by expiration. That's roughly the same level where it peaked before dropping in May 2011. (See our Education section for more on the strategy, known as a vertical call spread.)
RIG is up 0.22 percent to $49.99 in afternoon trading. It ripped from $44 to over $55 between late December and mid-February but has been pulling back since.
Our researchLAB analytical tool shows strength in certain energy names despite weakness in the broader market, with contract drillers and fracking companies standing out in particular. The option action has been bullish as well:
- Canada's Penn West Petroleum saw buying in its June 10 calls for $0.60 to $0.65 as the shares try to hold long-term support at $10.
- Newfield Exploration's April 23 calls lit up the Heat Seeker after the stock touched its lowest price since early 2009.
- Service company Noble and producer Occidental Petroleum have also drawn buyers.
- Cabot Oil & Gas stood out yesterday as investors bought the April 70 calls for $0.25. COG is up more than 3 percent today, and those contracts have inflated to $0.45.
Disclosure: I own NFX shares.