Approach Resources is trying to lift itself from the lowest
levels of the year, but traders want protection.
optionMONSTER's Depth Charge monitoring program detected the
purchase of about 2,900 January 22.50 puts on the energy company,
most of which priced for $3.70. An equal number of January 17.50
puts were sold at the same time for about $1.45. Volume was more
than triple open interest in both strikes.
The trade resulted in a cost of about $2.25 and will more than
double the investor's money if AREX closes at or below $17.50 on
expiration. It's known as a
because premium from selling
contracts is used to reduce the price of options that are closer to
the money. (See our
AREX rose 4.47 percent to $23.63 yesterday and is up more than 30
percent from the beginning of October. The company produces oil and
natural gas from "unconventional" deposits in the United States--a
corner of the energy sector that's been especially popular
two big acquisitions
Yesterday's put spread could have been the work of a speculative
bear or of an investor who wants to
hedge a long position
in the name. Given the speed of AREX's recent bounce, he or she may
fear a pullback before it continues higher.
The use of January contracts gives the position plenty of time for
such a move. Thanks to the spread, the trader is protected for
several months and can still enjoy a rally.
Overall option volume was more than 15 times greater than average
in AREX, with puts outnumbering calls by 5 to 1.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.
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