Williams falls but draws upside bet

By David Russell,

Shutterstock photo

Williams fell after cutting its outlook, and one investor is looking for a rebound.

The natural-gas stock dropped 3.04 percent to $18.52 in morning trading after management said its previous forecasts for profit this year and next were too high. The company said lackluster demand and large inventories were hurting prices.

WMB WMB is down 12 percent in the last three months and has been building support around $18. Today it snapped back quickly from a drop of as much as 5 percent, suggesting that some investors want to own the shares around these levels.

The option activity consists of a bullish combination trade: A block of 10,000 January 20 calls was purchased for $0.90, matched against the sale of 10,000 January 17.50 puts for$1.10. Volume was above open interest in both strikes.

The investor collected a credit of $0.20 and will make unlimited profits if the natural-gas stock rallies above $20 by expiration. He or she will lose money if it falls below $17.30, and the position will expire worthless if WMB fails to move in either direction.

The trade is an example of how investors can use options to place large bets on a stock without having to commit capital or accumulate shares. Today's position is the equivalent of owning at least 1 million shares, about one-sixth the average stock turnover in WMB.

Overall options volume in the name was more than twice the average level, according to the Heat Seeker.

(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 Nasdaq, Inc.

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

This article appears in: Investing Options
Referenced Stocks: WMB

More from optionMONSTER




Follow on:

Find a Credit Card

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