By Jud Pyle, CFA, chief investment strategist for the Options News Network
is an Atlanta-based company that sells electricity. Today, there was some call activity that was lighting up the board.
The Jan. 15 calls were sold 46,000 times today by a customer who then turned around and bought 23,000 each of the March 15 calls and the June 15 calls. The Jan. 15 calls were sold for around $2.80. The customer paid around $4 for the March and around $4.80 for the June calls.
The most simple explanation for this trade is that the investor was selling to close the Jan. 15 calls, and rolling out to exposure in the March and June calls. The January options of course are due to expire tomorrow. However, the open interest in the Jan. 15 calls is currently only 23,000, so what is with the other 23,000? Well, the customer could have decided that he wanted additional March and June calls, so he sold the Jan. 15 calls to the market makers for deltas. The customer can then slowly buy stock in the market to cover the short Jan. 15 calls.
It is worth noting that Mirant, like so many other stocks, bottomed on Nov. 20 around $14.61. Now the stock is back trading up around the $18 level. This investor may want to continue a bullish bet because the stock was as high as $25 as recently as September. Of course, you can say that about a lot of stocks too.
Bullish rolls like these do not mean that investors should run right out and buy the shares. But it is important to note if you watch Mirant that at least one investor is bullish for another three to six months.
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."