Entergy's volatility is climbing, and one investor is getting long.
optionMONSTER's tracking systems detected the purchase of about 6,700 January 2013 35 puts for $0.40, and about 7,000 January 2013 puts for $32.50. Volume was more than twice open interest in both strikes, and 10 times greater than average in the name overall.
Those contracts are extremely far out of the money and far into the future. ETR shares also rose as they were bought, which suggests the activity wasn't bearish, but the result of a hedged delta-neutral strategy.
Instead of looking for the power-generator to rise or fall, the investor hopes that its option premiums will rise. So, they buy stock and puts simultaneously, which makes them directionally neutral and isolates the volatility of the options from the share price.
Such trades often use long-dated contracts that are far out of the money because they are highly sensitive to changes in implied volatility. See our Education Section for more.
ETR's implied volatility based at a multiyear low below 16 percent in March, and now stands at about 25 percent. The stock rose 2.53 percent to $63.94 yesterday.
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