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Value buyers pick up Magnum Hunter

David Russell (david.russell@optionmonster.com)

Some traders apparently think that Magnum Hunter Resources is simply too cheap.

The Houston-based energy company came into yesterday's session down more than 50 percent in the last year and had fallen back to levels last seen in early 2010. Then the call buying began.

optionMONSTER's Heat Seeker program detected a string of trades in the August 2.50 calls, with blocks pricing for $0.65 to $0.75 about halfway through the morning. More than 2,000 would eventually change hands in volume well above the previous open interest of 609 contracts in the strike, indicating new activity.

These long calls give investors now have the right to buy MHR for $2.50 through expiration this summer no matter how high it might climb. They stand to enjoy significant leverage in the event of a rally, while limiting the amount that would be lost if it lies unchanged or keeps falling. (See our Education section for more on how options can be used to manage positions.)

MHR was down more than 5 percent when the calls hit, but it then reversed to end yesterday up 0.71 percent at $2.85.

Call volume in the name was more than triple that of the puts, a reflection of the session's bullish bias. Total option activity was 5 times its daily average.

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