Crash protection bought in Concho

By David Russell,

Shutterstock photo

Concho Resources has dropped to a key level, and one investor apparently thinks that it may continue falling.

optionMONSTER's Depth Charge tracking system detected the purchase of 1,700 January 75 puts for $2.40 and the sale of an equal number of January 85 calls for $1.30. Volume was more than triple open interest at both strikes.

The trade resulted in a cost of $1.10 and will profit from downside in the Midland, Texas-based energy driller. It also obligates the investor to sell shares for $85 if they reach that level and locks in a minimum selling price of $75. He or she may own shares and be using the strategy as a hedge, in which case it's known as a collar . (See our Education section)

CXO is down 1.07 percent to $77.94 in morning trading and has lost 9 percent of its value in the last six months. It's now back around the same level where it bounced in June and mid-2011, which could be leading some chart watchers to expect a bounce or a big drop if support is broken.

Total option volume is 4 times greater than average in the company so far today, according to the Depth Charge.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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

This article appears in: Investing Options
Referenced Stocks: CXO

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