Magnum Hunter Call Buyers Charge Into the Energy Company

By David Russell of  OptionMonster

NEW YORK -- Magnum Hunter Resources ( MHR) has held support at $6 for more than a month, and Thursday the bulls stepped in. 

OptionMonster's tracking programs detected the purchase of 10,000 October 7 calls, with the early blocks pricing for 13 cents to 15 cents. Volume was more than 10 times the previous open interest in the strike, which indicates that new money was put to work. 

These long calls lock in the price where investors can buy shares in the energy company, letting them cheaply position for a move higher. They can also generate significant leverage if the stock rallies. 

That leverage kicked in Thursday because the stock was little changed when the trades first appeared, but then it started to climb and ended the session up 3.85% to $6.47. The calls inflated more than 50% to 25 cents in that time. 

Total option volume in the name was 10 times greater than average in the session, with calls outnumbering puts by more than 100 to 1. 

Russell has no positions in MHR.

 

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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