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Najarian on Options: Exco Resources Heading Higher?

Tuesday, 29 Mar 2011 | 6:41 AM ET

Option traders are betting that Exco Resources is heading higher even though its fate remains unclear as management seeks to take the energy company private.

Call buying lit up OptionMonster's real-time tracking systems yesterday at the May 22 strike, as traders bought some 2,250 contracts mostly for $0.15 against previous open interest of 942. The May 21 calls also saw heavy buying, but it was below open interest and therefore could have been done to open or close existing positions.

Exco's shares closed yesterday up slightly to $20.30. The oil and natural-gas producer gapped up more than 37 percent when CEO Douglas Miller announced the bid to buy back the company at $20.50 a share, but the stock then pulled back and has been trading mostly sideways ever since.

Yesterday's option activity indicates that traders believe the stock will break through resistance levels in place since the beginning of 2010. For the May 22 calls that were purchased yesterday to turn a profit, Exco's shares would need to rise more than 9 percent by expiration.

Disclosure: Najarian has no positions in XCO.

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Pete Najarian is a professional investor, CNBC contributor, regular co-host of CNBC's "Fast Money" and co-founder of OptionMonster.com.

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