Frontline Options (FRO): Unusual Trading Activity
Options in beleaguered oil shipper Frontline experienced quite a bit of unusual volume during Friday afternoon’s trading session.
With Frontline trading Friday mid-day around $7.49 a share, option volume unexpectedly exploded. Overall option volume showed 23,000 contracts traded hands. That was nearly 12 1/2 times the normal daily option volume, with most of the volume on the call side.
This usually indicates option traders think shares are headed higher.
The most interesting trade was a sale of the May 7 strike puts and seconds later the purchase of the May 8 strike calls. This was done over 3,000 times.
By selling these puts, the trader collected $.80 in cash premium. The trader then took this money and used it to purchase the May 8 strike calls for $.95. So, he was able to initiate his position for only $.15 per share.
So, as long as Frontline is above $8.15 at or before May expiration, the trader has unlimited upside potential.
And I believe this trader is definitely on to something…
You see, Frontline is one of the world’s largest shipping companies that transports crude oil, coal, and iron ore worldwide.
However, shares of Frontline have been taken out to the woodshed over the last year as shares fell from $25 all the way down to a low of $2.69.
This was due to an increase in oil supply and a decrease in oil prices. The result, FRO saw its day rates decline on their giant tankers.
However, things appear to be turning around.
After reaching a bottom in November, Frontline has rallied 178% to over $7.00 a share.
The resurgence is due to recent notes by their CEO John Fredriksen and investment bank Dahlman Rose concerning a surprising increase in recent shipping rates for oil tankers.
Additionally, Mr. Fredriksen said, “with oil prices staying firmly above $100 a barrel and a strengthening global economy, our business is poised higher even during the summer months.”
So, could this signal a continued rise in share price?
It’s too early to tell right now, but it looks like option traders are beginning to think so!
And don’t forget, Frontline is scheduled to release their next earnings report right around this time. In other words, we could be in for a lot of volatility as we get closer to this expiration… so stay tuned.
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Category: Unusual Options Trading Activity
