By Jud Pyle, CFA, chief investment strategist for the Options News Network
Looking at the May 12.5 calls in
, we find that more than 9,900 contracts have changed hands today, compared to current open interest of 1,063 for an average price of around $1.41. With earnings due to be announced in NBR after the market closes on April 21, the bulk of this volume has been on the buy side.
In order for these calls to be profitable at expiration, the stock needs to be higher than $13.90, which is the strike price plus the option premium. Shares of NBR are currently trading at $12.76, and have not closed above $13.90 since Nov. 28, when they closed at $14.50.
Today's activity at this call strike has largely been dominated by large blocks of both buyers and sellers. But as I mentioned above, the majority of the trading was on the buy side, and that has served to push up implied volatility.
Last night, these calls closed at $1.00 vs. the stock's closing value of $12.18. That was an implied volatility of 75. At the time that I wrote this, with the stock at $12.58, the calls are marked 1.35. That is an implied volatility of 85.
Intuitively, as well, you can tell that there is more buying interest than selling because the call price has gone up 35 cents with the stock up only 40 cents at the time of this writing. This option started the day out-of-the-money, so it would have moved up in price by less than half of what the stock moved, but actually rose by more because implied volatility expanded.
It is also worth noting today that in addition to earnings coming one week from today, NBR caught an analyst upgrade this morning from Bank of America/Merrill Lynch. The firm upgraded the shares to "buy" from "underperform" as part of a bullish note on the broader oil service space.
The call buyers today could be expecting that, with the catalyst of earnings coming on Tuesday and this analyst upgrade, the stock could have the wind at its back.
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."