Nexen trade bets on limited downside


Shares of Nexen have been trapped in a relatively tight range since July, and one trader is betting that the stock won't drop sharply in the next month.

NXY was up 3.88 percent on Friday, closing the session and the week at $24.36 after bouncing off support around the $23.50 level. The stock climbed off Thursday's close, which was one of its lowest since gapping higher on July 23 from below $18 when China's CNOOC agreed to pay $15.1 billion for the energy company.

That $18 price was in play in Friday's option action. The big trade was a print of 10,000 December 18 puts that was sold at the bid price of $0.30 on a relatively wide bid/ask spread. The volume was far higher than the strike's open interest of 555 contracts at the beginning of the day, so this is clearly a new position.

The put seller is looking for NXY to hold above $18 through the December expiration. The average implied volatility has climbed from 20 percent to 80 percent in the last two months, and it is now at a 52-week high and at its highest level compared with the stock's historical volatility , which sits at 28 percent. (See our Education section)

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