Ultra Petroleum draws downside play

Mike Yamamoto (mike.yamamoto@optionmonster.com)

Ultra Petroleum is hovering at the low end of a six-month range, and one trader is positioning for another drop.

optionMONSTER's tracking systems detected the sale of 2,000 December 19 puts for $0.35 against open interest of 2,349 and, seconds later, the purchase of 2,000 January 19 puts for $0.85 above open interest of 904 contracts.

This activity indicates that a trader is closing a long-put position and re-establishing it a month later, as the December options were below open interest and the January puts were above it. He or she then avoids the time decay of the December contracts, which expire in two weeks, while paying a net $0.50 to stay in the trade.

UPL rose 0.6 percent yesterday to close at $19.96. The oil and gas company had fallen sharply since trading above $22 after Thanskgiving, breaking below several key moving averages along the way. Shares have been trading between about $20 and $24 since mid-June.

Yesterday's put roll was not tied to any stock activity identified by our systems, though the trader could be using the options as a hedge to protect a previously established long position. The long puts could also be a straight bearish bet that UPL will fall some 7 percent by expiration in mid-January.

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