Noble Energy draws low-risk trade

By
A A A

Noble Energy has been ripping higher, and one investor is using a low-risk strategy to eke out a few dollars of profit.

optionMONSTER's tracking systems detected the purchase of about 4,060 February 70 calls for $16 against open interest of 4,229 contracts. An equal number of May 75 calls was sold at the same time and for $12.90 against open interest of just 51 contracts.

NBL The trade was probably the work of a shareholder who rolled a short position in the calls to the higher strike. That would earn an additional $5 on NBL stock in return for paying $3.10 now and agreeing to hold the position for an additional three months.

While it may seem strange to implement the trade with so much time remaining until February expiration, the investor may have wanted to act now because the bid/ask spreads on the calls will widen further as NBL climbs, increasing the cost of the trade.

The natural-gas stock rose 2.23 percent to $85.16 yesterday and is up 12 percent in the last month. The $80 level had provided resistance for most of the year, so now investors may expect it to provide support if the shares pull back.

That also would also bolster the case for the trade, which makes its maximum profit if NBL stays above $75 through May expiration. The strategy is similar to another transaction in Rayonier yesterday that used the time value in options to create a position similar to a fixed-income investment. (See our Education section)

Overall option volume in the stock was 11 times greater than average in the session, with calls outnumbering puts by 15 to 1.

(Chart courtesy of tradeMONSTER)



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

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


This article appears in: Investing , Options

Referenced Stocks: NBL , RYN

optionMONSTER

optionMONSTER

More from optionMONSTER:

Related Videos

Stocks

Referenced

67%
100%

Most Active by Volume

101,454,963
  • $3.94 ▲ 3.14%
62,729,757
  • $7.30 ▼ 5.93%
49,280,029
  • $30.97 ▼ 4.80%
48,752,252
    $23 unch
39,500,444
  • $15.34 ▼ 1.54%
39,039,022
  • $96.235 ▼ 1.95%
34,081,943
  • $45.5399 ▼ 1.64%
30,754,650
  • $95.47 ▼ 1.56%
As of 7/31/2014, 02:01 PM