Options Traders Running with Marathon

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Energy is ripping again today, and options traders are sticking with a top name in the space.

  • Here’s the large bullish call roll that appeared earlier this morning in Marathon Oil (MRO):
  • Some 5,000 May 20 calls were sold for about $1.
  • A matching number of May 21.50s were bought for $0.31.
  • Volume was below open interest in the 20s but not the 21.50s, which suggests an existing long position was closed and some of the capital was redeployed at the higher strike.

Calls fix the price where a security can be purchased, so they can generate leverage when shares move higher. (See our Knowledge Center.) MRO is the second best-performing stock in the SPDR Energy ETF (XLE) over the last month with a 27 percent gain. That rally likely drove up the value of the May 20s. If the trader owned them, the roll let him or her exit a winning position and roll up to the 21.50s and recover $0.69 of their capital in the process. ($1 – $0.31 = $0.69) They’re now exposed to potential further upside and may be looking for a gusher if the White House restores sanctions against Iran.

MRO rose 4.39 percent to $20.59 today and is back to its highest level in almost three years. The Houston-based company reported better-than-expected earnings, revenue and production on May 2 as management improved domestic operations and shed overseas assets. It also had an upside roll three weeks ago that’s now wildly profitable.

Overall options volume is about average in the name so far today, but calls outnumber puts by a bullish 5-to-1 ratio.

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David Russell is VP of Content Strategy 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.