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Bulls sticking with Ultra Petroleum

David Russell (david.russell@optionmonster.com)

The bulls can't get enough of Ultra Petroleum.

Just last week , they snapped up the May 28 calls for $0.15 to $0.20. The stock rallied almost immediately, inflating those contracts by more than 800 percent to $1.95.

Today they're coming back with a new upside trade one month further out. This time, optionMONSTER's Heat Seeker system shows the purchase of 2,300 June 31 calls for $1.10, while an equal number of June 26 puts was sold for $0.45. Volume was more than 8 times the previous open interest at each strike, indicating that new positions were initiated.

This strategy is highly leveraged to swings in the Houston-based oil and gas driller. If it rallies, the long calls owned will appreciate and the puts sold short will dwindle, yielding profits on both sides. But the opposite will occur if UPL falls, and the calls will be rendered worthless if the stock remains below $31 through expiration in mid-June. And  If the stock is below $26 at that time, the trader will be on the hook to buy shares at that level. (See our Education section)

UPL is up 1.23 percent to $29.74 in afternoon trading and has risen 36 percent so far this year. While trading at less than one-third of its highs from almost six years ago, it's been coming back to life as traders gravitate toward stocks that will benefit from a stronger global economy. Frackers, wildcatters, land drillers, and natural-gas tankers have also been strong of late, according to optionMONSTER's researchLAB analysis tool.

Total option volume is triple the daily average in UPL so far today, according to the Heat Seeker. The company reports earnings on May 1.

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