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Leveraged upside trade in Williams

David Russell (david.russell@optionmonster.com)

Williams has been grinding higher, and the bulls deployed a leveraged strategy late yesterday morning.

optionMONSTER's Heat Seeker monitoring program detected the purchase of 2,500 November 37 calls for $0.72. Equal-sized blocks were sold at the same time in the November 34 puts for $0.34 and the November 39 calls for $0.19. That translates into a cost of just $0.19.

The investor stands to collect $2 if WMB climbs to $39 by expiration four weeks from now--a profit of 950 percent from the shares advancing less than 8 percent. The trader is also obligated to buy the pipeline stock for $34 if it's below that level on expiration, though he or she might be willing to do that because the price would bet at the lower end of its recent trading range.

The strategy combines a vertical spread with short puts . (See our Education section for other ideas on how to generate big leverage from modest price fluctuations.)

WMB fell 0.19 percent to $36.17 yesterday. While it's lagged the broader market in the last year, its 6 percent gain in the last three months is almost twice that of the S&P 500 during the same time. The stock has also been finding support above its rising 50- and 200-day moving averages, which could make some chart watchers expect continued gains.

Third-quarter results will be released on Oct. 30 after the closing bell. Williams also saw short-term call buying last week as investors looked for an earnings rally.

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