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Why put volume is surging in Tesoro

Chris McKhann (chris.mckhann@optionmonster.com)

Shares of Tesoro are moving higher today, but puts dominate the oil-refining company's option activity.

A trader bought 4,000 February 40 puts for the ask price of $1.17 against open interest of more than 10,000, according to optionMONSTER's Depth Charge tracking system. At the same time, he or she sold 4,000 February 38 puts for the bid price of $0.62 in volume that was more than 4 times the open interest at that strike, indicating new activity.

There are two possible strategies behind this activity. It could be a new put vertical spread opened for $0.55, which would be the maximum loss if shares are above $40. The maximum gain of $1.45 would come with the stock below $38 at expiration.

Alternatively, the trade could be rolling a short-put position to a lower strike. (See our Education section)

TSO is up 3.9 percent to $42.05 in midday trading. Shares were last below $38 in mid-November but reached a five-year high on the first day of the year, when they were above $45.  

Today's put trading pushed Tesoro's total option volume to more than 11,000 contracts, almost 4 times its daily average in the last month.

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