Markets

How trader is managing Flotek position

Flotek Industries is a highly volatile stock, and traders are using options to manage exposure.

Our screening programs detected the sale of 1,200 September 17.50 calls for $0.85 and the purchase of an equal number of June 15 calls for $1.50. Volume was below open interest in the 15s, indicating that an existing short position was closed and rolled to the higher strike.

The investor probably has a covered-call trade in the energy-fracking company. The trader would have been forced to sell FTK for $15, so he or she adjusted the strategy to give the stock more room to run. The adjustment cost an incremental $0.65 but gives the investor a chance to make an additional $2.50 on the shares.

Covered calls also make sense in FTK because its implied volatility is about 47 percent, compared with its 33 percent historical volatility . Selling the contracts lets the investor convert that into income while reducing the pain if shares fall. (See our Education section)

The shares surged 8.47 percent to $15.63 yesterday and has returned to its highest level since the market was crashing in September 2008. The rally followed a strong earnings report, with profit margins improving and the company's products gaining market share.

optionMONSTER's proprietary researchLAB tool shows capital flowing into fracking stocks in recent weeks as natural-gas prices rise and attention focuses on domestic energy production. Other companies such as C&J Energy Services and Heckmann have also been gaining momentum.

Total option volume in FTK was 15 times greater than average in yesterday's session.

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.


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

In This Story

FTK

Other Topics

Options

Latest Markets Videos