EXCO Resources ripped higher yesterday, and option traders are looking for even more gains.
OptionMonster's scanners detected heavy trading in the April 8 calls for $0.24 and $0.25 yesterday, with more than 2,800 contracts changing hands in volume that was far above the previous open interest of just 11. Those calls lock in the price where investors can buy shares in the independent oil and natural-gas company, which is focused on shale resources.
The calls can generate some nice leverage if EXCO continues to climb, but will expire worthless if it doesn't. Traders use these contracts for cheap upside positions, limiting the amount of capital at risk if they get the direction wrong.
EXCO shares ended the session up 9 percent to $7.75. The company recently boosted its quarterly dividend by 25 percent, and shares are up 19 percent in just the last week.
More than 7,200 calls traded versus 1,140 puts, a reflection of the day's bullish sentiment in the name. Total option volume was four times greater than average.
—By CNBC Contributor Pete Najarian
Options Trading School:
Pete Najarian is a professional investor, CNBC contributor, regular co-host of CNBC's "Fast Money" and co-founder of OptionMonster.com. Najarian owns XCO calls.