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Pre-earnings bet on Ultra Petroleum

David Russell (david.russell@optionmonster.com)

An unusual bullish trade appeared in Ultra Petroleum yesterday before this morning's quarterly report.

optionMONSTER's Heat Seeker monitoring program detected the purchase of some 4,700 November 19 calls for $0.45 and the sale of a matching number of December 17 puts for $0.40. Volume was more than triple open interest at both strikes, indicating that new positions were initiated.

Owning calls locks in the price where the stock can be bought, while selling puts forces the investor to buy shares if shares drop. Combining the two strategies is highly bullish, using the money from the puts to offset the cost of the upside bet. That lowered the cost to just $0.05.

The transaction was unusual because it used different expiration months. As a result, the trader is on the hook to buy UPL for $17 over the next seven weeks but only has the right to make money from a rally through Nov. 15. However, the break-even level of $19.05 is closer than the $17.05 price where he or she faces additional losses. (See our Education section for more on how to time fluctuation with options.)

UPL declined 1.29 percent to $18.36 yesterday and is down 15 percent in the last three months. The oil and gas company is now trying to hold support around the same $18 level where it traded in January and bounced in April, which could make some chart watchers think that support is in place.

Total option volume was 5 times greater than average in the session, according to the Heat Seeker.

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