Magnum Hunter Resources has been ripping higher, and traders got long using an unusual strategy on Friday.
optionMONSTER's tracking programs detected the sale of more than 2,000 February 10 puts for $3.20. Previous open interest was just 106 contracts, so new positions were initiated.
Selling puts lets the investors collect premium in return for agreeing to buy a stock at a certain level by expiration. The noteworthy thing about Friday's trade is that they used a deep-in-the-money strike, effectively programming an entry price of $6.80. Anywhere above that, they make money.
The position is similar to owning shares because the puts sold short will lose value if MHR rallies. Unlike owning shares, however, their profits cease at $10--a level the stock has never seen. (See our Education section)
MHR rose 8.20 percent to $7.26 on Friday. It doubled between July and October, pulled back to $6 earlier this month, and has been rebounding since. A member of the fast-growing domestic energy sector, the company saw revenue rise 96 percent in the last year and is expecting it to surge another 50 percent in 2014.
Total option volume was 6 times greater than average in the session.
More From optionMONSTER
- VIX at 13 as stocks hit more highs
- Home data, durable goods on tap
- Bulls hitch a ride on YRC Worldwide