By Jud Pyle, CFA, chief investment strategist for the Options News Network
Oil has staged a rally today of more than 5%. One reason for the rally is a continued pop in commodities following the
announcements yesterday that it was going to buy Treasury bonds and mortgage-backed securities. The dollar fell dramatically, and that has caused gold and oil to rally. This rally has served to boost shares of commodity and energy stocks today.
Looking at the April 50 calls in
, we find that they have traded more than 17,000 times in the first three hours of trading today vs. current open interest of 2,453, for an average price of around $1.20. What is interesting about this call activity is that most of the activity is from buyers of the options.
In order for these calls to be profitable at expiration, the stock needs to be higher than $51.20, which is the strike price plus the option premium. Shares of Schlumberger are currently trading $45.22, up more than 4% on the day, and up more than 25% from their 52-week closing low of $35.19.
As I mentioned above, the majority of the trading was on the buy side, and that served to push up implied volatility. Last night, the calls closed at 60 cents vs. $42.91 stock. That was an implied volatility of 53. At the time that I write this, with the stock at $45.22, the calls are marked 1.30. That is an implied volatility of 57.
This buying activity in Schlumberger and other single stocks is helping to feed a rally in the
CBOE Volatility Index
. Currently the VIX is up more than 6% on the day, rising from $40.06 to $42.60. This call-buying does not automatically mean that investors should run out and buy shares of Schlumberger. But it is worth noting that at least one investor thinks the shares could continue to run.
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."