Bulls See More Bounce in Energy Space: Options Recap

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Oil pumping Unit at sunset time

Energy stocks have gone from bad to good in the New Year, and one options trader is looking for the bounce to continue.

Check out the activity yesterday in Oklahoma City-based driller Devon Energy (DVN):

  • A block of 20,000 April 28 calls was bought for $1.48 in a new opening trade.
  • A block of 10,000 April 24 calls traded for $3.25. Volume was below open interest, which indicates an existing position was closed.
  • It was the largest options transaction in any single-name stock all session.

Calls fix the price where a stock can be purchased, so they can make money when shares move higher. (See our Knowledge Center.) Tuesday’s investor apparently came into the session riding a profitable trade in the 24s. He or she then exited those contracts and rolled into twice as many of the 28s.

Devon Energy (DVN) chart showing 50-day MA and options-volume spike.

They recovered $290,000 of capital and have the potential for greater leverage if the shares keep climbing.

DVN rose 0.79 percent to $25.55, and is 25 percent above its December 26 low. Energy, by far the worst sector in the fourth-quarter, is one of the best performers so far in 2019.

Overall option volume in the stock was 4 times the average over the last month, with calls outnumbering puts by a bullish 8-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.