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Magnum Hunter Resources Corp. Message Board

  • mhrboardpolice mhrboardpolice Oct 2, 2013 1:49 PM Flag

    Option buying today

    3,000 Nov 7.50s and 4,000 Jan 7.50s were bought today. Someone thinks that something big is coming.

    Sentiment: Strong Buy

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    • ...AND 6,000 Jan 2015 7.50s were bought today!

      Sentiment: Strong Buy

    • MHRpolice: I looked back at your Jan 7.50s observation and given the contract counts, suspect that 800 to 900 of the contracts were sold as the upper leg of a 5 to 7.50 spread (since there were more than 900 $5s purchased as well). Considering today's prices, i presume the investor bought the 5s for $1.80 and sold the $7.50s for around .40, so he or she had $1.40 invested in the spread to make $2.50 if the PPS goes north of $7.50. That's a 78% return in four months if the PPS gets there. Assuming 900 contracts, that is a $126,000 investment to make $225,000 or a cool $100g gain. A good size play.

      I am really pulling for this investor since I have 400 Jan $7.50 contracts myself sold as the upper leg of two spreads based on $2.50 and $5 lower legs -- although my spreads are Leaps that were placed around this time last year. Here's pulling for at least $7.50 come January! Lex

    • Nice observation, and I tend to agree that something big is coming in the context of Utica reserves, but dont know if the EOY reserve report will be out by january expiry. Personally, I like the Feb options better for that reason.

      If interested in a fairly conservative option play (no oxymoron intended), you may want to consider a Feb 2014 bull call spread between 5 and 7. Buy the 5s for 1.80 and sell the 7s for .60 and have $1.20 invested to make $2 or a 67% return in less than 5 months. Moreover, you start the trade in the money with the shares already trading above your $6.20 break even point. This is a lot more conservative than buying $7.50 calls outright and a 67% return -- assuming only a 7% rise in the PPS from here in 5 months ($7/$6.54 = 1.07) -- is nothing to sneeze at if you simply see the PPS going up at all from here. I think it will happen, so I purchased a small 50 contract spread for this trade yesterday in one of my kid's college account.

      GL Lex