Markets

Massive leverage in Rosetta trade

Rosetta Resources has been trading sideways for years, and now one large player apparently thinks that it's ready to rally.

optionMONSTER's Heat Seeker monitoring program detected the purchase of some 5,300 January 50 calls for $3.70. Equal-sized blocks were sold in the January 45 puts for $2.50 and the January 60 calls for $0.86. Volume was more than 11 times the previous open interest in all three strikes, which indicates that new positions were initiated.

The strategy opens a bullish call spread while selling puts to lower the cost to just $0.34. It now has the potential to expand to $10 on a move back to $60. That would represent profit of more than 2,900 percent based on the initial outlay. But if the stock falls below $45, the trader would face the obligation to buy shares at that level. (See our Education section)

ROSE fell 2.5 percent to $48.80 yesterday. The oil and natural-gas producer rallied sharply between 2009 and 2011 but has been grinding in a range since. Shares are also attempting to find support around the same level where they peaked in April, which would make some chart watchers think that the stock getting ready for another move higher.

Yesterday's strategy is noteworthy because it uses Rosetta's recent low around $45 as support and is targeting a move back its all-time high around $60 reached last year.

Total option volume in the name was 42 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

ROSE

Other Topics

Options

Latest Markets Videos