Overseas Shipholding is bouncing from an eight-year low, and one large bull is finally getting on board.
optionMONSTER's Heat Seeker tracking system detected the purchase of 5,000 January 19 calls for $2.45 and the sale of an equal number of October 25 calls for $0.25, resulting in a cost of $2.20. Volume was more than 9 times open interest in both strikes.
OSG rose 9.47 percent to $18.62 yesterday. Known as a diagonal spread, the trade has different potential outcomes based on how the stock performs over time. If it stays at yesterday's level or falls, the investor will lose all of the initial investment.
The position starts making money back above $19, with gains over $21.20. If OSG pushes all the way to $25 by October expiration, the trader will be forced to exit with a 172 percent profit. If, however, shares stay below $25 at that time, the investor will simply own the January contracts.
He or she could then sell more upside calls, roll the contracts, or simply ride them higher. The trade is an example of how options can be used to establish a long position with significant flexibility down the road for adjustments.
Overall option volume in OSG was 4 times greater than average, with calls outnumbering puts by 34 to 1.
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