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TheStreet Open House

Bargain Hunters Target New Year Rallies

Stocks in this article: WPRT RDC DO

 
By David Russell of OptionMonster
 
NEW YORK -- Traders are bottom-fishing as the year ends, looking for certain stocks to rebound in early 2014.
 
It began with Westport Innovations (WPRT), a maker of natural-gas engine parts that's been sliding since August and is now near 52-week lows. OptionMonster's tracking systems detected heavy volume in the January 19 calls, with buyers paying 30 cents almost 2,500 times within an hour of the opening bell.
 
Not much later, energy driller Rowan (RDC) saw unusual activity in its January 36 calls. A quick flurry of trades crossed for 20 cents, and those contracts would more than double to 45 cents by the afternoon, a testament to the kind of fast money that can be generated with options.
 
Calls lock in the level where a stock can be purchased no matter how far it might climb, so even modest fluctuations in the underlying share price can produce huge swings in the options. But if the shares don't rise far enough, these options can expire worthless.
 
Westport fell 0.39% to $17.68, and Rowan dropped 2.52% to $32.94. Westport came into the session down 22% in the last month, while Rowan lost 10% in that period.
 
Less than 20 minutes after the Rowan trade, traders piled into fellow energy-drilling stock Diamond Offshore (DO). This time, more than 10,000 January 59 calls were purchased against in volume that dwarfed the previous open interest of just 166 contracts, clearly showing that this is fresh buying, as premiums ranged from 26 cents to 50 cents. Diamond fell 0.52% to $55.62 and is down 9% in the last month.
 
Total option volume was 76 times greater than average in Rowan and 21 times above typical levels in Diamond. Westport's turnover was less than twice its daily average.
 
Russell has no positions in any of stocks mentioned.

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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