Exco Faces Large Bearish Trade

By David Russell of OptionMonster
 
NEW YORK -- Exco Resources (XCO) saw a nice pop on the long side recently, but now traders are looking for a drop.
 
optionMONSTER's tracking programs detected the purchase of more than 4,700 June 5 puts for 20 cents on Friday. The volume surpassed the strike's previous open interest of 4,141 contracts, which indicates that new positions were initiated.
 
These puts lock in the price where shares in the energy company can be sold, letting investors hedge against a selloff or speculate on a decline. That way they can stay long if they own stock or get bearish without the upside risk posed by short-selling.
 
Exco shares fell 4.58% to $5.84 on Friday. The name lit up our scanners with bullish call buying in January, and those contracts had doubled in value by last Wednesday. But then the shares stalled at their 200-day moving average, and now the bears are stepping in.
 
Total option volume was almost triple the daily average, with puts outnumbering calls by 5 to 1.
 
Russell has no positions in XCO.

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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