Bulls Piling Into Encana

By David Russell of OptionMonster

NEW YORK -- Encana (ECA) has been coming to life, and the bulls are piling in.

OptionMonster's tracking systems detected the purchase of almost 29,000 October 23 calls in the Canadian natural-gas producer, most of which priced for 85 cents to 90 cents. Volume was more than 40 times the strike's previous open interest, which indicates that new money was put to work.

These calls lock in the price where a stock can be purchased, letting investors cheaply position for a rally. They can also generate significant leverage from a move in the right direction, which has already happened in this stock.

On Feb. 25 we cited July 21 call buying for about 55 cents, at a time when Encana traded for $18.99. Monday the stock climbed 2.09% to close at $20.49, and those July 21s had doubled to $1.15.

Total option volume in the name was six times greater than average in Monday's session, with overall calls outnumbering puts by a highly bullish 17-to-1 ratio.

Russell has no positions in ECA.

 

This commentary comes from an independent investor or market observer as part of TheStreet guest contributor program. The views expressed are those of the author and do not necessarily represent the views of TheStreet or its management.

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