Bottom seen in Resolute Energy

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A large trader apparently believes that the pain will stop soon for Resolute Energy.

optionMONSTER's tracking programs detected the sale of 8,300 June 10 puts for $2.50 and the purchase of an equal number of March 10 puts for the same price. A similar trade occurred in the September 12.50 puts and the March 12.50 puts, with 10,000 contracts at each strike pricing for $5 each. Volume was below open interest in both the March 10s and the March 12.50s, so it appears that existing short positions were rolled forward in time.

The trader almost certainly wrote a large number of puts in the oil and gas driller some time ago when it was trading much higher. He or she probably wanted to collect income from the sale of those options, hoping that REN would remain above the strike prices. But then the stock fell, leaving the puts in the money and those bets underwater. (See our Education section)

The trader was then on the hook to buy shares for $10 and $12.50 on expiration at the end of this week. Yesterday's adjustment provides more time for a rebound to occur, and losses will diminish if the shares do push higher.

REN fell 1.82 percent to $7.55 yesterday. The stock slid after peaking above $18 in early 2011, but it has been holding ground around its current price for almost two years. The company has struggled with pipeline problems at its Aneth field in Colorado and Utah but has continued to develop other properties in the meantime.

Short interest surpassed 20 percent in the company at the end of last month, which could draw buyers to the name as long as support levels hold.

Total option volume in Resolute was more than 300 times greater than average in yesterday's session.



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.

Copyright © 2010 OptionMonster® Holdings, Inc. All Rights Reserved.


This article appears in: Investing , Options

Referenced Stocks: REN

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