Call Buying in Oxy: Options

CHICAGO (TheStreet) -- Investors pushed up commodity prices Tuesday after news this morning that Australia's central bank was going to increase interest rates. That pushed down the U.S. dollar, which effectively strengthened commodity prices.

Occidental Petroleum(OXY Quote) was one stock that rallied today, and there was some call-buying activity that accompanied the stock's advance.

Looking at the February 60 calls, more than 10,000 of these contracts have changed hands so far today at a price of roughly $19.45 each. These calls are home to current open interest of 163 contracts (suggesting the calls changing hands today were traded to open), and implied volatility rests near 45. At the time the majority of the volume hit the tape, it was around 1:30 p.m. EST, and the stock was trading near $77.70.

While call buying is often a sign of bullish activity, this trade might be more of a stock-replacement strategy than an outright bullish bet. What we mean by this is that at the same time the investor bought the calls, they were selling shares of OXY stock.

These long calls have a different risk profile than the shares of stock. For one, there is less capital at risk, so the investor would have less actual money on the table. Secondly, the calls will outperform the stock, should the stock decline.

Given that OXY is now up almost 30% from the 60 level in early July, this investor might be thinking that reducing some long exposure might be prudent. Occidental has not announced an official earnings date yet, but it is likely that they will report during the last week of October.

Written by Jud Pyle in Chicago