Markets

Momentum trade is bullish on El Paso

El Paso is consolidating after a big move, and one investor is using a leveraged trade in hopes of further upside.

optionMONSTER's Heat Seeker tracking program detected the purchase of 10,000 July 19 calls for about $0.87 and the sale of a matching number of July 18 puts for $0.60. Volume was roughly triple open interest in both strikes.

The trade cost about $0.27 and will simulate owning shares in the natural-gas stock. If it rallies, they'll benefit from tremendous leverage and double their money for every $0.27 that EP climbs above $19.27. They'd also face similar losses if it drops.

The main difference between the strategy and owning shares in the natural-gas company is that if EP remains between $18 and $19 by July 15, the entire position will expire worthless.

The shares fell 2.42 percent to $18.56 in morning trading but are still up 58 percent in the last year. They slowly ground higher throughout 2010 and made a big move early this year.

The stock has been working its way upward since then, making incrementally higher lows while finding support at its 50-day moving average. Some chart watchers could interpret that as evidence the bullish trend remains intact.

EP reported better-than-expected earnings last Friday, fueled by a 5.1 percent increase in energy production.

The bullish trade accounts for the bulk of the trading so far today, and pushed total options volume in the name to twice the average amount.

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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