By Jud Pyle, CFA, chief investment strategist for the Options News Network
NEW YORK (
earnings figures are due in one week, and at least one option investor boosted upside call volume by trading a spread.
NRG is currently trading up 2% to $24.25 without any company-specific news. The stock reached a 52-week high of $29.96 in October, and options action during today's session suggests at least one investor expects the stock to climb back up near those levels throughout the near-term.
At 12:30 p.m. EST, a block of 10,000 June 25-27.5 bull call spreads changed hands for a net debit of roughly 67 cents per spread. Earlier in the day around 11 a.m. EST, we saw two blocks totaling 5,000 June 25-27.5 bull call spreads cross the tape for around the same premium. More than 20,000 of these spreads changed hands thanks to some investors who anticipate roughly 12% of upside prior to June options expiration in approximately 50 days.
If NRG shares climb higher than $27.50 during the next two months, this spread trade could produce a maximum profit of $1.83 per spread (the difference between the strikes minus the premium paid). On the other hand, if the stock does not climb higher than the breakeven price of $25.67, which represents a 5% climb from the stock's current level, this bull call spread caps any losses at the premium paid (67 cents per spread).
Implied volatility of the NRG June 25 calls is 33% and the June 27.5 calls haven an implied volatility of 32%, compared to the stock's 30-day historical volatility of 27%. This call action could be an investor rolling down to a lower strike, but I think it is more likely that investors bought these spreads to open moderately bullish positions on NRG.
Jud Pyle is the chief investment strategist for Options News Network 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."