Options: Pre-Earnings Call-Buyers in Nabors

By Jud Pyle, CFA, chief investment strategist for the Options News Network

Looking at the May 12.5 calls in Nabors Industries (NBR Quote), we find that more than 9,900 contracts have changed hands today, compared to current open interest of 1,063 for an average price of around $1.41. With earnings due to be announced in NBR after the market closes on April 21, the bulk of this volume has been on the buy side.

In order for these calls to be profitable at expiration, the stock needs to be higher than $13.90, which is the strike price plus the option premium. Shares of NBR are currently trading at $12.76, and have not closed above $13.90 since Nov. 28, when they closed at $14.50.

Today's activity at this call strike has largely been dominated by large blocks of both buyers and sellers. But as I mentioned above, the majority of the trading was on the buy side, and that has served to push up implied volatility.

Last night, these calls closed at $1.00 vs. the stock's closing value of $12.18. That was an implied volatility of 75. At the time that I wrote this, with the stock at $12.58, the calls are marked 1.35. That is an implied volatility of 85.

Intuitively, as well, you can tell that there is more buying interest than selling because the call price has gone up 35 cents with the stock up only 40 cents at the time of this writing. This option started the day out-of-the-money, so it would have moved up in price by less than half of what the stock moved, but actually rose by more because implied volatility expanded.