One investor wants to take a free ride on pipeline company
optionMONSTER's Heat Seeker monitoring program detected the
purchase of some 25,000 November 35 calls for $0.59. A matching
number of January 36 calls was sold at the same time for $0.69.
Volume exceeded open interest in each strike, indicating that this
is new activity.
The trader collected $0.10 in opening what's known as a diagonal
spread. This strategy entails buying and selling options at
different expiration months to take advantage of higher premiums in
the longer-dated contracts.
He or she now has the right to buy WMB for $35 through November and
will then be on the hook to sell shares for $36 two months later.
So the trader was essentially paid to open the strategy and stands
to make more money from a rally.
The risk is that WMB stays below $35 through November expiration
and then rallies. The trader would then be left with short calls
but could still buy back the January contracts to exit the
WMB is flat at $31.63 this afternoon but is up more than 8 percent
in the last six months. Today's call spread pushed total option
volume in the name to 4 times greater than average, with calls
outnumbering puts by more than 100 to 1.
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