Credit: Shutterstock photoOccidental Petroleum has rallied back near its all-time highs, and one bull is arbitraging different volatilities to get long.
optionMONSTER's Heat Seeker tracking system detected the purchase of about 6,300 February 110 calls for $0.41 and the sale of a matching number of February 85 puts for $0.75. The trader collected a credit of $0.34 and will earn infinite profits if the California-based oil company pushes toward $110.
OXY is up 0.91 percent to $97.75 in afternoon trading. The interesting thing about today's transaction is that the investor was paid to implement it, even though the stock was almost exactly between the two strike prices.
Usually such a trade would cost a small debit. It was different in OXY because implied volatility in the puts was 32 percent versus 23 percent in the calls.
That suggests more investors are worried about a potential pullback in the share price than are hopeful of more upside. Selling puts exploited that price differential.
OXY also peaked around $89 in the spring. Some chart watchers may expect that level to provide support if pulls back, which would protect them from getting assigned stock. (See our Education section)
The stock, which has rallying along with other integrated oil companies, peaked at $100.04 in May 2008. It's now consolidating just below that level, which some traders may consider prelude to a breakout.
(Chart courtesy of tradeMONSTER)
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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.
