Options: Bullish Activity in Smith Int'l

By Jud Pyle, chief investment strategist for the Options News Network

There was some bullish option activity in Smith International(SII Quote) today that was a continuation of some of the bullish activity that we have seen for a couple of weeks now not only in the oil service sector, but other commodity-related stocks.

This morning, an investor bought 2,000 of the July $27.50 calls for around $5.35. Simultaneously, he sold 4,000 of the January 2010, $17.50 puts for around $2.75 each. So in total, the investor collected a small credit to do this trade. The trade is definitely bullish because if the stock rallies, the calls will go up, and the puts will go down.

What I think is noteworthy about this trade is that it is another example of bullish activity in a stock that had gotten absolutely crushed in the fourth quarter of 2008. Like a lot of other stocks that were tied to the commodity bubble, Smith was down nearly 75% from its peak this summer to a trough in late November. Last week in this column we talked about bullish call buying in Transocean(RIG Quote), whose shares had met a similar fate. Both SII and RIG are now up more than 30% from their lows.

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