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TheStreet Open House

Energy Bulls Discover Nexen

By David Russell, reporter at OptionMonster

NEW YORK -- The energy sector has been hot recently, and Monday the bulls went after Nexen (NXY).

OptionMonster's monitoring systems detected the purchase of about 10,000 September 17 calls in the Canadian oil and gas company for 91 cents. An equal number of September 16 puts was sold at the same time for 76 cents, resulting in a net cost of about 15 cents.

Buying calls locks in the price an investor must pay to buy shares, while selling puts represents a belief that a stock won't fall below a certain level. Combining the two trades is exceptionally bullish.

The position is very similar to owning shares but extremely leveraged because it will double the trader's money for every 15 cents that the stock moves above $17.15. But the strategy also faces huge potential losses with shares below $16.

Nexen rose 1.91% to $16.57 Monday. Although it's down 10% in the last three months, the stock has been slowly working its way higher since early June as investors hunt for bargains in the energy space.

The company is scheduled to report second-quarter results on Thursday, which could also provide a potential catalyst to the upside.

Overall option volume was more than 140 times greater than average in the name Monday.

Russell has no positions in NXY.

This commentary comes from an independent investor or market observer as part of TheStreet guest contributor program. The views expressed are those of the author and do not necessarily represent the views of TheStreet or its management.

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