Call One-by-Two in Halliburton

An investor expects HAL to rally around 6%, but not much higher before losing money on this call one-by-two.

By Jud Pyle , Mar 3, 2010 12:58 PM EST

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

Halliburton

did not announce any news this morning, but at least one investor expressed bullishness on the company by purchasing a call ratio spread. The investor bought 2,000 April 31 calls for 1.95 per contract and simultaneously sold twice as many April 34 calls for 60 cents per contract to pay 75 cents per ratio spread.

In this call one-by-two, investors will make a maximum profit of $2.25 per spread if HAL shares close at $34 on April options expiration. If HAL shares drop below $31.75 (the breakeven price), investors cap their losses at 75 cents per spread. However, this trade is only moderately bullish, because investors incur unlimited losses if HAL shares rally higher than $36.25.

The April 31 calls have gained 40 cents so far today, while the April 34 calls are currently trading up 14 cents on the day. Current open interest of the April 31 calls is 7,500 contracts, and the 34-strike calls are home to current open interest of 3,200 contracts.

HAL shares are currently trading up 88 cents to $32.07. The stock reached a 52-week high of nearly $35 on Jan. 19, after trading in a range between $25 and $32 since October. It looks like at least one investor expects the stock to rally around 6% through the near term, but not much higher before losing money on this call one-by-two.

Jud Pyle is the chief investment strategist for Options News Network (www.ONN.tv) and the portfolio manager of TheStreet.com Options Alerts. Click here for a free trial for Options Alerts. Mr. Pyle writes regularly about options investing for TheStreet.com.

Jud Pyle, CFA, is the chief investment strategist for Options News Network. Pyle started his career in finance in 1994 as a derivative analyst with SBC Warburg. After four years with Warburg, Pyle joined PEAK6 Investments, L.P., in 1998 as an equity options trader and as chief risk officer. A native of Minneapolis, Pyle received his bachelor's degree in economics and history from Colgate University in 1994. As a trader, Pyle traded on average over 5,000 contracts per day, and over 1.2 million contracts per year. He also built the stock group for all PEAK6 Investments, L.P. hedging, which currently trades on average over 5 million shares per day, and over 1 billion shares per year. Further, from 2004-06, he managed the trading and risk management for PEAK6 Investments L.P.'s lead market-maker operation on the former PCX exchange, which traded more than 10,000 contracts per day. Pyle is the "Mad About Options" resident expert. He is also a regular contributor to "Options Physics."