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