In-the-money trade bets on Williams

By David Russell,

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Williams has been riding a bullish wave in the natural-gas sector, and one investor is using a leveraged option trade to position for more upside.

Our Heat Seeker tracking system detected the purchase of 35,000 January 22.50 calls for $9.35 and the sale of an equal number of May 17 calls for $14.40. Volume was below open interest in the May options, indicating that an existing long position was rolled from one strike to the other.

The trader collected a credit of $5.05 and now has an additional seven months to profit from EMB pushing higher. He or she is using in-the-money contracts to amplify moves in the share price. The January calls have a delta of 0.92, meaning that they will appreciate $0.92 for every $1 that the stock climbs. (See our Education section)

WMB is up 2.82 percent to $31.42 in afternoon trading. If it were to climb another 27 percent to $40, those January calls would increase in value by more than 85 percent. (See this article for more on how in-the-money options can be used to enhance returns.)

Total option volume in WMB is more than 14 times greater than average so far today.

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: WMB

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