Combination trades have been working in the energy sector, and now the strategy is appearing in Goodrich Petroleum.
optionMONSTER's Heat Seeker monitoring system yesterday detected the purchase of 5,050 September 15 calls for $0.90 and the sale of 6,719 September 10 puts for $0.30. Volume exceeded open interest at each strike, indicating that new positions were initiated in the oil and natural-gas company.
Selling puts generates income and creates an obligation to buy GDP shares in a pullback, while owning calls locks in a price where they can be bought in a rally. Combining the two trades results in a position that will track moves in the stock, but at much lower cost than buying shares directly.
For instance, the net delta of the position implies that it will behave similarly to owning 723,260 shares. But it cost just $253,000--less than 3 percent of the price tag if they had purchased that much common equity. The result will be massive leverage from even a small move in the stock. (See our Education section)
Similar transactions appeared recently in names such as Suncor Energy and Canadian Natural Resources . Both more than tripled as shares inched higher.
GDP was up less than 2 percent when the bullish trade appeared, but then finished strong and closed yesterday's session higher by 5.63 percent to $13.89. The combination expanded more than 10 percent in the process.
Total option volume was twice the daily average, according to the Heat Seeker.
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