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How the bulls are playing NuStar

David Russell (david.russell@optionmonster.com)

Option traders have discovered NuStar in a big way.

The San Antonio asphalt company had been weak for years, falling all the way to its late-2008 lows before suddenly lighting up our scanners last week. Traders quickly doubled their money as the shares rallied, and the paper has continued to flow since.

Two stocks are in play: NuStar Energy LP (NS), which terminals and stores petroleum products, and NuStar GP Holdings (NSH), which owns the general-partner interest in NS. Both have dividend yields over 10 percent, and they generally move together.

Activity originally occurred in the NS December 40 calls, which shot up from $0.55 to $1.10, according to optionMONSTER's Heat Seeker tracking system. Buyers returned on Monday as those same contracts pulled back, snapping up another 4,900 for $0.75 to $0.95. Even more purchases were detected yesterday for $1.05.

This time , traders also looked to NSH. The Heat Seeker showed more than 7,300 December 22.50 calls changing hands, most of which were bought for $0.60.

NS ended the session up 2.65 percent to $38.71, and NSH rose 4.19 percent to $20.64. The NS December 40s, bought for $0.55 to $1.05 in the last two weeks, closed the day bid at $1.40. NSH's December 22.50 calls climbed $0.10 to $0.70.

Long calls lock in the price where shares can be purchased, letting investors cheaply position for a rally. They can also generate huge leverage if the stock moves in the right direction but can expire worthless if it doesn't. (See our Education section)

Total option volume was 12 times greater than average in NS, with calls outnumbering puts by almost 11 to 1. The activity was even more extreme in NSH, coming in at 29 times above typical levels. Upside contracts also outstripped the downside by an extremely bullish 90-to-1 ratio.

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