Quicksilver (NYSE: KWK) options action suggests bearishness

By
A A A

Shares of oil and gas name Quicksilver Resources Inc. (NYSE: KWK ) are due for a pullback throughout the near term, according to at least one investor who appeared to load up on downside puts.

KWK shares are currently down more than 3%, or roughly 50 cents, to $14.20 without any company-specific news today. The Texas-based company is due to announce earnings on May 10 before the market opens, and analysts polled at Thomson Reuters estimate earnings of 16 cents a share. The options action that crossed the tape an hour ago suggest investors are calling for possible downside throughout the next month, and the options are due to expire the same month as the company's earnings release.

During midday trading, a block of 7,000 at-the-money ( ATM ) May 14 puts changed hands for a premium of 75 cents per contract, which was the mid price at the time of the trade. These ATM puts are home to current open interest of just 174 contracts, indicating investors most likely bought these options to open on a bearish bet that KWK shares could drop prior to May options expiration in 35 days. If KWK shares drop lower than $13.25 throughout the near term, investors could make significant gains as the stock moves closer to zero. On the other hand, if KWK shares rally higher, this long put trade caps any losses at the premium paid, or 75 cents per contract.


A long put position such as this simulates a short stock trade, and you can build a profit/loss graph to evaluate the risk/reward dynamics of this strategy by opening a free virtual trading account today. You will also gain access to tools essential to stock and option trading. Want to trade this long put or sell stock in the real world? Take advantage of 100 commission-free trades at OptionsHouse .

The May 14 puts are currently trading up 15 cents on the day, and have an implied volatility of 48% compared to the stock's 30-day historical volatility of 36% (the buying action has pushed up the price of the puts and implied volatility on the day).



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.



This article appears in: Investing , Options

Referenced Stocks: ATM , KWK

Jud Pyle

Jud Pyle

More from Jud Pyle:

Related Videos

Stocks

Referenced

75%

Most Active by Volume

33,974,386
  • $17.98 ▲ 0.28%
20,763,901
  • $91.29 ▲ 2.06%
19,110,793
  • $7.26 ▼ 1.22%
18,528,869
    $8.33 unch
18,014,920
  • $4.19 ▼ 1.18%
16,448,919
  • $25.83 ▼ 0.19%
14,748,190
  • $7.60 ▼ 1.43%
14,144,383
  • $112.01 ▼ 0.47%
As of 12/24/2014, 02:12 PM


Find a Credit Card

Select a credit card product by:
Select an offer:
Search
Data Provided by BankRate.com