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Energy bulls turn to Magnum Hunter

David Russell (david.russell@optionmonster.com)

The energy sector has been incredibly active among option traders, and the bulls turned to Magnum Hunter Resources on Friday.

optionMONSTER's Heat Seeker scanners detected heavy call volume in the Houston-based oil driller. The paper hit early and hard.

Buyers initially snapped up the October 7 calls for as little as $0.15. Most of the large blocks followed at $0.20, and then the action really heated up as traders bought the October 6s for $0.85 and the November 7.50 calls for $0.30.

These long calls lock in the price where shares can be purchased, so investors use them to avoid missing a rally. The options can also generate extreme leverage on a percentage basis because they cost so little compared with the stock itself. (See our Education section)

And that's exactly what happened Friday because MHR continued to advance and closed the session up 6.99 percent to $7.04. The October 7s more than doubled to $0.45, while the Novembers appreciated 50 percent and the October 6s gained about 20 percent.

Total option volume was 9 times greater than average in MHR, with calls outnumbering puts by an extremely bullish 17-to-1 ratio.

Other energy names to draw upside action included Baker Hughes, Energy Transfer, Markwest Energy, and Valero.

(Russell has no positions in MHR.)

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