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Bulls are coming back to Phillips 66

David Russell (david.russell@optionmonster.com)

The bulls think that Phillips 66 may return to its winning ways.

The oil refiner was an almost-constant presence on our Heat Seeker monitoring system last year and early this year, throwing off a string of hugely profitably trades. But it's been flagging since early April along with other companies in the industry such as Valero Energy and Tesoro.

Today the option paper is looking to the upside once again. Some 5,200 November 67.50 calls were purchased for $2.10 as an equal number of November 80 calls were sold for $0.40. That translates into a debit of $1.70.

Volume was below open interest in the November 80s, so there are two possible explanations of the activity. One is that both halves of the trade were opened as new positions, in which case it this a bullish call spread with a maximum profit of 635 percent on a move to $80 by expiration.

Alternatively, the trader may have owned the November 80s and is rolling them to a lower strike now that the stock is down. If that's the case, he or she is adding money to a losing trade in hopes that shares will bounce . (See our Education section)

PSX is trading at $58.15 this afternoon, off 3.71 percent on the day and down 13 percent since the start of the month. It had doubled between June and April.

About half an hour after the activity in the November contracts, a similar transaction appeared in the August expiration. This time, 5,000 August 62.50 calls were bought for $1.70 and 5,000 August 67.50s were sold for $0.60. Volume was also below open interest at the higher strike.

Total option volume was almost 7 times greater than average so far today, according to Heat Seeker. Calls outnumber puts by a bullish 14-to-1 ratio.

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