Carrizo Oil attracts gigantic bullish bet

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One investor wants to make money for nothing in Carrizo Oil & Gas.

optionMONSTER's Heat Seeker tracking system detected the purchase of 10,000 May 32.50 calls for $1.74. An equal number of May 35 calls were sold for $0.87, and 20,000 May 25 puts were sold for an average premium of $0.455. There was no open interest in any of those strikes when the session began.

The trade resulted in a credit of $0.04 but will make its real money to the upside. If CRZO closes at or above $35 on expiration, the investor stands to collect an additional $2.50--which translates to a gain of $2.5 million, without a single cent being spent.

Nonetheless, there is considerable risk because he or she is now on the hook to buy the energy company's shares for $25 if they fall below that level. The strategy is very similar to a trade that occurred at roughly the same time in Cabot Oil & Gas. Both positions create significant leverage by selling large amounts of downside puts, reflecting a belief that downside in the stocks are minimal.

CRZO rallied 4.07 percent to $31.22 yesterday and is up 29 percent since the beginning of last month. It appears to be finding support around the same $26-$28 area that has marked the upper end of its range since last summer, which could be leading some chart watchers to think that it's breaking out.

Overall option volume was 93 times greater than average in the name in yesterday's session, according to the Heat Seeker.



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: CRZO

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