By David Russell of OptionMonster
NEW YORK -- The energy sector has been incredibly active among option traders, and the bulls turned to Magnum Hunter Resources (MHR) on Friday.
OptionMonster's trade scanners detected heavy call volume in the Houston-based oil driller. The paper hit early and hard.
Buyers initially snapped up the October 7 calls for as little as 15 cents. Most of the large blocks followed at 20 cents, and then the action really heated up as traders bought the October 6s for 85 cents and the November 7.50 calls for 30 cents.
These calls lock in the price where shares can be purchased, so investors use them to avoid missing a rally. The options can also generate extreme leverage on a percentage basis because they cost so little compared with the stock itself.
That's exactly what happened Friday because Magnum continued to advance and closed the session up 6.99% to $7.04. The October 7s more than doubled to 45 cents, while the Novembers appreciated 50% and the October 6s gained about 20%.
Total option volume was nine times greater than average in the name, with calls outnumbering puts by an extremely bullish 17-to-1 ratio.
Other energy companies to draw upside action included Baker Hughes, Energy Transfer, Markwest Energy, and Valero.
Russell has no positions in MHR.