HES, SD Options – Unusual Trading Activity – November 9, 2012
This week we’re taking a look at some very unusual options trading activity in Hess (HES) and SandRidge (SD).
As many of you know, unusual options volume can be a valuable indicator as to what traders are thinking, and more importantly, where these stocks are heading in the short-term.
This is something professional options traders pay a lot of attention to, and for good reason…
Unusual options activity can “tip off” big moves in a stock, either up or down.
So let’s take a look at some ‘interesting’ activity that caught our eye this week:
Hess Options (HES)
Options on integrated energy company Hess (HES) are experiencing a large amount of trading activity today.
HES operates in two segments, Exploration and Production (E&P) and Marketing and Refining (M&R).
The E&P segment explores for, develops, produces, purchases, transports, and sells crude oil and natural gas. While the M&R segment manufactures refined petroleum products and purchases, markets, and trades refined petroleum products, natural gas, and electricity.
They also operate 1,360 gas stations on the east coast. And some of those are in the New York and New Jersey area that have been impacted by Hurricane Sandy.
And as you know, there have been severe supply shortages of gasoline all across the Northeast in the wake of Sandy. Obviously, owning gas stations that don’t have gas can be a difficult business to be in.
What’s more, crude oil prices are nearing a four-month low as investors fret about demand as the global economy slows.
At this point, option traders are betting on considerable downside on HES.
How do I know this?
Simple… Just this morning a trader purchased 13,841 HES December $50 strike put options for $1.87 each. That’s an eye-popping $2.5 million bet on HES to the downside.
And volume on the contract has soared to over 33,000 as more traders pile on!
As a straight put option play, this option trader will see considerable profits if HES falls below $48.13 before the options expire in December.
And there’s a good chance he’s right…
You see, HES had been in a consolidation pattern called a symmetrical triangle in technical analysis. The price action over the last nine months created an upward trending support line and downward trending resistance line. And these trend lines have been getting closer and closer to meeting.
This pattern is neither bullish nor bearish. What matters is which way the stock breaks out of the consolidation pattern. Yesterday, HES broke down below the support of the upward trending support line.
Once that happens, technical analysis predicts HES will make a big move lower in days ahead. This trade looks like it has some serious potential to rack up big profits. What do you think?
SandRidge Energy Options (SD)
Options on SandRidge Energy (SD) are lighting up our tracking system this morning with a huge put sale.
SD operates as an independent natural gas and oil company in the United States. They are the leading driller in Kansas’ Mississippian Lime oil and gas play.
Earlier today, shares of SD plunged more than 20% after they reported quarterly earnings. They also indicated they’re looking to sell their position in Texas’ Permian Basin to fund development of their operations in Oklahoma and Kansas.
The announcement was greeted with ire from one of the company’s largest investors. They immediately called for SandRidge to be put up for sale and the CEO to step down.
Obviously some of SD’s investors are none too pleased with the recent developments. But at least one option trader thinks the selloff has been overdone.
The trader sold a block of 9,288 SD January 2014 $3 puts for $0.35 apiece. The open interest on the strike was 3,137 contracts at the beginning of the day, indicating that this is a new position.
As the seller of the put options, the trader immediately collected nearly $110,000.
In essence, the put seller is betting SD will hold above $3 through the expiration in January of 2014. This was a savvy play that capitalized on the heightened implied volatility of these options after the stock plunged post-earnings.
Here’s the bottom line…
If SD stays above $3, the trader will get to keep the entire $110,000.
However, he’s on the hook to buy 313,700 shares at $3 apiece if the stock falls below $3. But that could be the trader’s intent… Picking up shares of SD at average price of $2.65 isn’t a bad trade considering they have estimated proved reserves of 470.6 million barrels of oil equivalent.
More Options Ideas…
That wraps up this week’s unusual options trading and volume…
Keep in mind, there’s a lot more unusual options activity going on than what we discuss here.
We just try to bring you what we feel are the most significant ones– and the ones you might actually be able to make some money on!
So keep an eye on your email inbox… we have a lot more options trading ideas coming your way!
Safe Trading,
Marcus Haber
Category: Unusual Options Trading Activity
