Options report: Bullish call roll in oil driller

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Marathon Oil’s shooting higher, and options traders are looking for the rally to continue.

Here’s a breakdown of the unusual activity that occurred in MRO minutes before lunch on Monday:

  • Some 7,700 April 17.50 calls were sold for $0.98 and $0.99.
  • An equal number of May 19 calls were bought for $0.71.
  • That results in a net credit of roughly $0.27.

Remember that calls fix the price where investors can buy a stock, so they can appreciate much more quickly than the underlying equity. Traders use them to leverage relatively small moves and to get more bang for their buck when a rally occurs. See our Knowledge Center for more.

MRO rose 0.17 percent to $18.19 yesterday, and is up 22 percent in the last month. It’s been surging along with other energy names amid higher crude-oil prices and worries about tensions in the Middle East.

The options transaction also stood out because volume was below open interest in the April contracts expiring at the end of the week. That suggests existing position was closed and rolled forward in time. Aside from letting the investor recover $207,000 of capital ($0.27 * 100 shares per contract * 7,700 contracts) , it also gives them exposure to the next earnings report after the closing bell on May 2.

Its last two set of numbers beat expectations as management sheds assets and refocuses on domestic operations.

Total options volume was about twice the daily average on Monday, with calls outpacing puts by a bullish 3-to-1 ratio.

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David Russell is VP of Market Intelligence at TradeStation. Drawing on nearly two decades of experience as a financial journalist and analyst, his background includes equities, emerging markets, fixed-income and derivatives. He previously worked at Bloomberg News, CNBC and E*TRADE Financial. Russell systematically reviews countless global financial headlines and indicators in search of broad tradable trends that present opportunities repeatedly over time. Customers can expect him to keep them appraised of sector leadership, relative strength and the big stories – especially those overlooked by other commentators. He’s also a big fan of generating leverage with options to limit capital at risk.