A large trader apparently believes that this week's selloff in Midstates Petroleum has been overdone.
optionMONSTER's Heat Seeker system shows that 5,100 March 5 calls were purchased for $0.58 to $0.70 in less than 20 minutes yesterday. Open interest in the strike was a mere 17 contracts before the trade appeared, showing that this is fresh buying.
These long calls lock in the price where the stock can be purchased through mid-March no matter how far it might climb. They could be sold earlier at a profit if premiums rise with a rally before then, providing potentially significant leverage, but the contracts will lose value if shares drop. (See our Education section)
MPO was up 2.06 percent to close at $4.95 yesterday after falling to $4.39 earlier in the session, near its 52-week lows. The Houston-based oil and natural-gas producer had pulled back with the rest of the energy sector and accelerated lower after breaking below its 200-day moving average on Monday.
Yesterday's call buying made up virtually all of the 5,133 options that traded in the name, volume that was 34 times its daily average for the last month. Only 37 of those contracts were puts, a reflection of the session's bullish bias.
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