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Far Out-Of-The-Money Calls In Play On POT, USO & OXY Ahead Of U.S. Holiday

 

Today’s tickers: POT, USO & OXY

POT - Potash Corp. of Saskatchewan, Inc. – Shares in the provider of crop nutrients and feed products have rallied sharply in recent weeks, adding nearly 20.0% to $44.76 during the month of June. Potash extended gains Tuesday, adding 2.6% to trade at $45.10 by 10:40 a.m. in New York on an upgrade to ‘Sector Perform’ from ‘Underperform’ with a 12-month target price of $47.50 at National Bank Financial. Trading traffic in far out-of-the-money August expiry call options this morning suggests one or more strategists are positioning for the stock to continue to move higher this summer. It looks like approximately 850 calls were picked up at the Aug. $55 strike for an average premium of $0.04 apiece versus open interest of just 50 contracts. Call buyers shelling out $0.04 per contract stand ready to profit should shares in Potash Corp. gain another 22.0% to surpass the breakeven price of $55.04 within the next six weeks to August expiration. Traders long the calls could look for opportunities to sell the contracts prior to expiration at an advantageous price if POT’s shares continue to climb, although time decay will be working against them. Potash Corp. reports second-quarter earnings ahead of the open on July 26th.

USO - United States Oil Fund, LP – Shares in the USO are extending their move off fresh 52-week lows reached last week as concerns regarding possible restrictions in the Strait of Hormuz and hopes for QE3 push crude oil prices higher. Shares in the USO are up 4.2% at $32.75 with 50 minutes remaining in today’s shortened trading session. Weekly calls attracted heavy trading traffic within the first 15 minutes of the opening bell as some traders looked to secure exposure to further upside gains in the price of the underlying. Volume in the weekly calls is heaviest at the July 06 ’12 $34.5 strike where some 1,100 calls were purchased at an average premium of $0.14 each. Upwards of 1,200 calls changed hands at the higher $35, $36 and $37 strikes, as well. These far out-of-the-money calls cost $0.03 – $0.04 apiece and could increase in value if shares in the fund continue to sprint higher through the end of the week. Overall options volume on the USO exceeds 160,000 contracts this afternoon, with roughly 1.6 calls changing hands on the fund for each single put option in play.

OXY - Occidental Petroleum Corp. – Upside calls are in play on the oil and gas exploration and development company this morning as shares in Occidental Petroleum tack on 2.4% to trade at 88.00 ahead of the 4th of July holiday. Occidental shares have rallied hard and fast in recent sessions, up almost 15% since last Monday. Traders looking for shares in the name to extend gains in the near term snapped up around 1,000 calls at the July $92.5 strike at a premium of $0.49 per contract. Call buyers stand ready to profit at expiration in a couple weeks in the event OXY’s shares increase another 5.7% to top the effective breakeven price of $92.99. Shares in Occidental last traded above $92.99 at the beginning of May.

 

Caitlin Duffy

Equity Options Analyst


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