Buying calls locks in the price an investor must pay to buy shares, while selling puts represents a belief that a stock won’t fall below a certain level. Combining the two trades is exceptionally bullish.
The position is very similar to owning shares, but extremely leveraged because it will double the trader’s money for every $0.15 that the stock moves above $17.15. But the strategy also faces huge potential losses with shares below $16.
Nexen shares rose 1.91 percent to $16.57 yesterday. Although it’s down 10 percent in the last three months, the stock has been slowly working its way higher since early June as investors hunt for bargains in the energy space.
The company is scheduled to report second-quarter results on Thursday, which also may provide a potential catalyst to the upside.
Overall option volume was more than 140 times greater than average in the name yesterday.
—By CNBC Contributor David Russell
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David Russell is a reporter and writer for OptionMonster. Russell has no positions in Nexen.