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.
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)
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