One investor is making a precise bet in energy driller Rowan.
optionMONSTER's monitoring systems detected the purchase of about 2,000 January 39 calls for $0.18 and the sale of an equal number of December 33 calls for $0.48 to $0.50, resulting in a credit of about $0.31. Volume was below open interest in the January contracts, so there are two potential explanations.
One is that the trader owns shares and wrote the calls against them to earn income. In that case, he or she is rolling the options down to a lower strike to earn some income while contining to hold the stock. That would reduce by $6 the price at which they're willing to sell their stock while shortening the duration of the position.
The other possibility is that both trades were opened, in which case they're betting that RDC will remain below $33 for the next week but then climb the next month. The main risk to that trade is that the stock rallies too soon, which would expose them to potentially big losses on the December calls. (See our Education section)
Regardless, both strategies reflect a belief that the stock will remain in a range through Dec. 15, followed by a potentially strong rally.
RDC is up 1.64 percent to $32.30. It's been trending lower since April and consistently hitting resistance at its 100-day moving average, which could explain why today's trader is betting that the stock will remain weak in the near term.
Overall option volume is 7 times greater than average so far today, with calls outnumbering puts by more than 1,000 to 1.
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