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Energy Bulls Discover Nexen

Alberta Oil Sands
Photo by: Rodrigo Sala
Alberta Oil Sands

The energy sector has been hot recently, and yesterday the bulls went after Nexen.

OptionMonster’s monitoring systems detected the purchase of about 10,000 September 17 calls in the Canadian oil and gas company for $0.91. An equal number of September 16 puts was sold at the same time for $0.76, resulting in a net cost of about $0.15.

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

Additional News: Energy Downturn Different This Time: Wilbur Ross

Additional Views: Energy Bulls Turn to GMX Resources

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David Russell is a reporter and writer for OptionMonster. Russell has no positions in Nexen.

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