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Trade sees Williams holding near highs

By: optionMONSTER
Posted: 4/26/2013 10:31:00 AM
Referenced Stocks: WMB

Pipelines have been hot lately, and Williams got a big vote of confidence today.

optionMONSTER's tracking programs detected the sale of some 18,600 June 36 puts in volume that dwarfed the strike's previous open interest of 336 contracts. Premiums fell from $0.78 to $0.69 as the trades crossed, which illustrates the strong selling pressure.

The investor must buy shares for $36 if they're below that level on expiration, which indicates they like the company and don't expect a major drop. Should it remain above $36, they puts will expire worthless and they'll keep the income received as profit.

Put selling is a common market-neutral strategy that makes money from the passage of time rather than a directional move. The trade has the benefit of letting investors make money from a stock they believe in without ever having to own shares. It also programs a buy order at a lower price, eliminating the difficulty of building a position. (See our Education section for more on how options can be used to manage trades.)

WMB is down 0.05 percent to $37.89 this morning and is now back near its previous peaks from mid-2008. It's benefited from a steady flow of money into pipeline companies as the United States regains its place as a major player in the global energy market. Similar companies,  including Kinder Morgan, Energy Transfer Partners, and Oneok, have also seen bullish activity this month.

Total option volume in WMB is about 2-1/2 times greater than average so far today.