By Jud Pyle, CFA, chief investment strategist for the Options News Network
NEW YORK (
) - Shares of oil and gas name
Quicksilver Resources Inc.
are due for a pullback throughout the near-term, according to at least one investor who appeared to load up on downside puts.
KWK shares are currently down more than 3%, or roughly 50 cents, to $14.20 without any company-specific news today. The Texas-based company is due to announce earnings on May 10 before the market opens, and analysts polled at Thomson Reuters estimate earnings of 16 cents a share. The options action that crossed the tape an hour ago suggest investors are calling for possible downside throughout the next month, and the options are due to expire the same month as the company's earnings release.
During midday trading, a block of 7,000 at-the-money May 14 puts changed hands for a premium of 75 cents per contract, which was the mid price at the time of the trade. These ATM puts are home to current open interest of just 174 contracts, indicating investors most likely bought these options to open on a bearish bet that KWK shares could drop prior to May options expiration in 35 days.
If KWK shares drop lower than $13.25 throughout the near-term, investors could make significant gains as the stock moves closer to zero. On the other hand, if KWK shares rally higher, this long put trade caps any losses at the premium paid, or 75 cents per contract.
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."