Markets

Leveraged bet on Halliburton bounce

Halliburton is down, and one investor wants to leverage a rebound.

optionMONSTER's Heat Seeker tracking system detected the purchase of 5,000 September 50 calls for $1.21 and the sale of 10,000 September 55 calls for $0.42 and $0.43. Volume was above open interest in both strikes.

The trade is known as a ratio spread because twice as many upside calls were sold as the number purchased closer to the money. That reduced the cost basis to just $0.36, resulting in a maximum potential profit of 1,288 percent if HAL closes at $55 on expiration.

Due to the larger number of short calls at the $55 strike, profits will erode above that level and turn to losses over $60.

It seems unlikely that HAL will rally that much by September because its all-time high of $57.77 was established less than three weeks ago. It's now at $44.70, up 5.35 percent in afternoon trading.

Given the magnitude of its recent pullback, today's ratio spread appears to represent a cheap, leveraged bet that it will push toward its recent highs but not hit new record levels.

Overall option activity in the provider of oil-field services is skewed bullishly, with calls outnumbering puts by more than 4 to 1, according to Heat Seeker.

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.

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