Another Call Roll as Options Traders Stick with Energy


Bullish options trades keep piling up in the energy space.

Here’s the large upside strategy that crossed the tape yesterday in Oklahoma-based oil driller Devon Energy (DVN):

  • Starting just minutes after the opening bell, traders unloaded about 7,000 May 39 calls for about $2.20 to $2.40. Volume was below open interest, which suggests an previous winning position was exited.
  • Large purchases started popping up at the same time in the May 42s, which they bought for $0.36 to $0.51. This time, they amassed almost 16,000 contracts — more than twice as many as the number sold at the lower strike.

Remember calls fix the price where a security can be purchased, so they can appreciate rapidly when a stock moves higher. (See our Knowledge Center.) In this case, it looks like they bought the 39s when DVN was lower and were sitting on big profits. He or she liquidated them and used some of the capital to buy even more at the higher strike.

Devon Energy (DVN)

All told, they recovered approximately $890,000 of their capital and stand to make even more if the stock shoots over $42 by expiration this Friday. DVN rose 0.90 percent to $41.33, and is up 30 percent since the start of last month. It also had a bullish options trade on April 19 and a better-than-expected earnings report on May 2.

By the way, here’s an interesting factoid about energy: Average daily options volume for companies in the SPDR Select Energy Fund (XLE) has risen about 27 percent since the beginning of April as investors chase rising crude prices. In the broader market, average daily options volume has fallen down 11 percent. Technology is still the place to be for options traders, but oil and gas companies seem to be getting more popular of late.

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David Russell is VP of Market Intelligence at TradeStation Group. 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.