Why traders are selling puts in Exco
Exco Resources has been range-bound for more than a year, and some traders apparently believe that the stock will stay above its long-term support level.
optionMONSTER's tracking systems show that 2,700 June 6 puts were sold for an average price of $0.44 on Friday. The volume was well above the strike's open interest of 1,926 contracts at the beginning of the session, indicating that this is new positioning.
XCO rose 2.24 percent on Friday to end the week at $6.84. Shares of the oil and natural-gas company, which operates in the U.S. shale space, has spent the last year trading between $6 and $9. It had peaked above $40 before the stock market crashed in 2008 and was trading above $20 in June 2011 before beginning a steady decline.
The put sellers are looking for XCO to close above that $6 support level at expiration in mid-June. If the stock is below this strike price, the traders will face the obligation to buy the shares. (See our Education section)
The trades pushed total option volume in XCO to 5,625 contracts, quadruple its daily average in the last month. The company is scheduled to report earnings results on Feb. 20 after the close.
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