Bears go in-the-money on Eagle Rock

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Eagle Rock Energy Partners gapped lower today after announcing organizational changes, and traders are using in-the-money contracts to play the selloff.

optionMONSTER's Depth Charge tracking system detected heavy buying of the June 7.50 puts, which traded 30,124 times against open interest of just 476. Most of the purchases priced for about $1.90 when the stock was trading near its session high of $5.61.

EROC Chart The puts have a delta of about -0.90, so they will appreciate about $0.90 for every $1 that EROC declines. Buying in-the-money puts let the investor profit almost immediately from even a small move in the stock price and could reflect a belief the downside is limited.  (See our Education section)

EROC is down 5.54 percent to $4.94 in afternoon trading. The natural-gas transportation partnership said it had completed the first phases of a reorganization intended to help it pay down its hefty debt load. It's also in the midst of a rights offering that will apparently dilute existing shareholders.

The stock is down 31 percent in the last month and has been falling since it formed a "spinning-top" reversal pattern at a 14-month high above $7 on April 26.

Overall options volume in EROC is 155 times greater than average so far today, with puts accounting for 91 percent of the activity.

(Chart courtesy of tradeMONSTER)



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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This article appears in: Investing , Options

Referenced Stocks: EROC

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