Markets

How trader is pumping Exco for income

Exco Resources is rebounding and one investor is milking income from the move.

optionMONSTER's tracking systems detected the purchase of 6,750 August 16 calls for $0.09 and the sale of an equal number of September 16 calls for $0.49, resulting in a net credit of $0.40.

Volume was below open interest in August but not September, which suggests that an existing short position was rolled from one month to the next. The transaction let the investor collect income now in return for staying in the trade for an additional month. He or she probably owns shares and is using options as part of a covered call strategy.

XCO is up 1.58 percent to $14.77 in afternoon trading and has gained 15 percent in the last week. The oil and gas producer popped in November on an attempted management buyout but then drifted sideways until early June, when a fire at a Louisiana facility resulted in the death of one employee. The stock then got slammed along with the rest of the market before bouncing at a two-year low last week.

Today's option trade is consistent with an expectation that XCO will grind higher. Using the covered call as it climbs will reduce risk and reward, producing more predictable results. (See our Education section)

More than 14,000 contracts have traded so far today, with not a single put changing hands.

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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