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Energy Bulls Turn to Kodiak Oil

By Mike Yamamoto, managing editor of OptionMonster

NEW YORK -- Kodiak Oil & Gas (KOG) is seeing bullish option activity ahead of its earnings report next week.

OptionMonster's trade scanners detected a strong buying pattern in the May 7 calls Wednesday as premiums rose from 75 cents to 90 cents. More than 3,200 of those contracts changed hands in volume well above the strike's previous open interest of just 671 contracts, a sign that new money was put to work.

These calls lock in a $7 purchase price for shares in the Denver-based company, so they can generate significant leverage if it rallies by expiration in mid-May. The contracts will closely track the stock price because they are already in the money and will rapidly lose value if the shares drop.

Kodiak shares rose 1.32% to $7.66 Wednesday, closing just below their 10-day moving average. The stock has been trending steadily lower since hitting a recent high of $9.65 in mid-March but may have found support in recent days.

Total option volume in the name Wednesday was more than twice its daily average in the last month. Calls outnumbered puts by a bullish 12-to-1 ratio.

Yamamoto has no positions in KOG

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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