Energy Bulls Still Looking for Oil Sands Breakout: Options Recap

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Energy Bulls Still Looking for Oil Sands Breakout: Options Recap

Options traders are targeting an obscure Canadian energy stock as oil pushes to its highest level in over four months.

Check out the surging call volume yesterday in Cenovus Energy (CVE), which extracts crude oil from the sands of Alberta province:

  • Roughly 33,000 April 9 calls were sold for $0.30 and $0.35. Volume was below open interest, which suggests the investor closed an existing long position.
  • At the same times, he or she purchased an equal number of May 10 calls for $0.30 to $0.35. Those were new opening trades.
  • Given the matching sizes and timing of the transactions, it looks like a bullish position was closed in April and rolled to May.

Calls fix the entry price on a stock. That can result in significant leverage if a rally occurs, letting investors profit from a move in the shares with limited capital at risk. See our Knowledge Center for more.

CVE rose 5.2 percent to $9.13 on Monday. It’s been steadily making higher lows since drawing bullish call volume on February 13. Some technicians may view that price action as a bullish triangle, with the potential for more upside if resistance is broken.

Cenovus Energy (CVE) with moving averages, call volume and potential triangle.

Cenovus Energy (CVE) with moving averages, call volume and potential triangle.

The bullish call roll came as crude oil futures (@CL) rose more than 2 percent to close above $61.50 for the first time since November 9. A combination of better-than-feared economic news, plus supply cuts by OPEC and domestic producers, is helping drive prices higher.

Overall options volume in CVE on Monday was about 7 times the past month’s average, according to TradeStation data. Calls outnumbered puts by more than 150 to 1.

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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.