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Bulls come back to shale space

Shale-gas stocks Range Resources and Southwestern Energy have been weak for months, but the bulls came back on Friday.

optionMONSTER's tracking systems detected unusual activity in both companies around the same time, focused on the September contracts. First, they snapped up about 8,000 September 40 calls in SWN for $0.73, dwarfing open interest of 1,765 contracts. Less than 30 minutes later, 2,400 of the September 82.50s were purchased in RRC for $0.43. Volume was more than twice open interest at both strikes, which indicates that new money was put to work on the long side.

Calls lock in the price where investors can buy shares, letting them position for a rally at limited cost. They can also generate significant leverage if shares move in the right direction.RRC fought back from early losses to end session up 0.32 percent to $75.93 and SWN rose 0.87 percent to $39.33. Both are down about 19 percent from late April, and have returned to levels last seen in December and January.

The broader energy sector has outperformed by a wide margin in the last six months, but lagged in the most recent month. It led again on Friday, which potentially suggests investors are returning to the space.

Total option volume was 5 times greater than average in SWN in the session, and twice normal amounts in RRC. Calls outnumbered puts by more than 15 to 1 in both.

(A version of this post appeared on InsideOptions Pro yesterday.)

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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