Bulls Charge Into EXCO Resources

By Pete Najarian, co-founder of OptionMonster

NEW YORK -- EXCO Resources (XCO) ripped higher Thursday, and option traders are looking for even more gains.

OptionMonster's scanners detected heavy trading in the April 8 calls for 24 cents and 25 cents Thursday, with more than 2,800 contracts changing hands in volume that was far above the previous open interest of just 11. Those calls lock in the price where investors can buy shares in the independent oil and natural-gas company, which is focused on shale resources.

The calls can generate some nice leverage if EXCO continues to climb but will expire worthless if it doesn't. Traders use these contracts for cheap upside positions, limiting the amount of capital at risk if they get the direction wrong.

The stock ended the session up 9% to $7.75. The company recently boosted its quarterly dividend by 25%, and shares are up 19% in just the last week.

More than 7,200 calls traded versus 1,140 puts, a reflection of the day's bullish sentiment in the name. Total option volume was four times greater than average.

Najarian owns XCO calls.

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.