How one investor is playing InterOil

By David Russell,

Shutterstock photo

One investor is using options to manage a long position in InterOil, which is trying to develop energy projects in Papua New Guinea.

The trader purchased 3,750 October 100 calls for $3 and sold an equal number of 2,500 October 65 puts for $4.95, according to our Heat Seeker tracking system. Volume was more than quadruple the open interest at each strike.

The trade resulted in a credit of about $112,500 and is apparently designed to profit from a big rally. If IOC remains between $65 and $100, however, the entire position will expire worthless.

Implied volatility in the name is more than 80 percent, compared with historical price swings of about 53 percent. This means that the calls and puts are pricing in a potentially large move.

IOC fell 3.28 percent to $76.93 yesterday. It's been pushing higher since mid-May but has recently pulled back to find support above its February peaks. Given that the company is exploring deposits and faces potential political risk, it's not surprising that implied volatility is so high.

Yesterday's option strategy gives the investor exposure to a spike in shares without tying up as much capital as owning the stock directly. (See our Education section for more on how options can be used to manage trades.)

Overall option volume in IOC was triple the daily average 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 Nasdaq, Inc.

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

This article appears in: Investing Options
Referenced Stocks: IOC

More from optionMONSTER




Follow on:

Find a Credit Card

Select a credit card product by:
Select an offer:
Data Provided by