Calls lock in the price investors must pay to buy shares, so they can generate some nice leverage in the event of a rally. But these options will expire worthless if the stock doesn’t move.
Shares of Weatherford , which provides equipment and services to energy drillers, rose 2.31 percent to $12.82 yesterday. The stock has been bottoming out between $11 and $12 since early June, while other companies in the sector have ripped higher amid a surge of bullish option activity.
Using calls that expire in 2014 gives the investor plenty of time for a rally, while avoiding big losses if the stock drops.
Overall option volume was eight times greater than average in Weatherford yesterday. Calls outnumbered puts by a bullish 15-to-1 ratio.
—By CNBC Contributor David Russell
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David Russell is a reporter and writer for OptionMonster. Russell has no positions in Weatherford.