Trade sees Tesoro running out of gas

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Tesoro refines millions of gallons of oil everyday, but one investor thinks that it's running out of gas.

TSO optionMONSTER's Depth Charge tracking system detected the purchase of about 5,000 December 17 puts for about $0.36. Around the same time about 3,000 December 17 calls were sold for $0.51. The trade pushed total option volume in the high-flying energy stock to 8 times greater than average.

The resulting position resembles a short sale on the stock, which has surged 33 percent since the beginning of November. It cost about $27,000 to implement, or $0.05 per put contract owned, and will deliver significant leverage on a drop below $16.95.

If done naked, the trade would lose money should TSO continue to rally. However, it was probably the work of an investor who owns the stock and wanted to hedge against a pullback. That way, he or she can simply sell the shares for $17 to cover the short calls. (Such a strategy would be a variation of a collar.)

TSO has been climbing amid heavy option action along with other refiners as the economy improves, demand climbs, and margins widen. Others such as Western Refining and Valero Energy have also enjoyed big runs.

(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: TSO , VLO , WNR

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