Someone’s looking for Marathon Petroleum to keep running into the New Year.
Options volume spiked to triple the monthly average in the oil refiner yesterday as a trader rolled a bullish position:
- About 32,000 January 70 calls were sold for $3.72.
- A matching number of January 75 calls were bought for $2.03 at the same time.
- Volume was below open interest in the 70s but not the 75s, which indicates an existing long position was closed and rolled to the higher strike.
Calls fix the price where traders can buy a stock, so they can make money to the upside. (See our Knowledge Center.) The investor apparently entered the session with a profit in the 70s after MPC’s recent rally.
He or she then sold them and reinvested most of the capital in the 75s. That way they’ll still profit if the shares keep running through expiration. In the process they recovered $1.69 of their capital at risk.
The adjustment also reduces their exposure to short-term pullbacks because it lowered their delta.
MPC ended the session up 0.65 percent at $68.02. It’s up 12 percent in the last month as activist investor Elliott Management pushed for the company to spin off its Speedway gas stations. According to The Wall Street Journal, management bowed to those demands on Monday.
In conclusion, “value stocks” like oil refiners have quietly rallied in the last month. And yesterday an options trader looked for the move to continue through early 2020.
