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