NRG Energy has been slowly grinding higher, and one investor thinks that gains may accelerate in the next year.
optionMONSTER's Heat Seeker monitoring program detected the purchase of 11,506 January 2015 30 calls for $2.30 and the sale of an equal number of January 2015 25 puts for $2.04. Volume surpassed the previous open interest in each strike, indicating that new positions were initiated.
The investor is now entitled to buy shares in the power generator for $30 in the next 12 months no matter how high they might rise in that period. But the trader is also on the hook to buy them for $25 if they go under that level--even if they drop to zero.
This position is similar to owning stock because it makes money to the upside and loses to the downside but cost much less to implement. In this case, the investor paid just $0.26 and will at least triple his or her money every $1 the shares climb. (See our Education section for more on the potential leverage of options.)
NRG rose 0.18 percent to $28.08 yesterday. The power company rallied sharply between mid-2012 and mid-2013 but has been grinding in a range since. The shares have made higher lows along their 200-day moving average since then, which suggests that bullish momentum remains intact.
Given that shares might consolidate for several months longer, yesterday's combination trade provides plenty of time and ensures that the investor won't miss an eventual rally.
Total option volume in NRG yesterday was more than double its daily average for the last month.
More From optionMONSTER
- Is Medivation heading for big rally?
- Videocast: Surge of action in the VIX
- Unusual action in Procter & Gamble
- Stocks & Offerings
- NRG Energy