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Halliburton Speculators Scoop Up Short-Term Options

HAL investors are targeting soon-to-expire options

by 10/16/2012 10:46 AM
Stocks quoted in this article:

Eleventh-hour option traders are honing in on Halliburton Company (NYSE:HAL - 34.60), with both calls and puts crossing the tape at a rapid-fire rate. Within the first 90 minutes of trading, the oilfield services concern has already seen roughly 13,000 calls and 5,900 puts change hands, far surpassing its average intraday volume of around 3,900 calls and 3,000 puts.

On the call side, the near-the-money October 35 strike has garnered the most attention, with nearly 5,200 contracts traded -- mostly at the ask price, suggesting they were bought. Plus, implied volatility on the front-month call was last seen 1.8 percentage points higher, hinting at new initiations.

Assuming the calls are being bought to open, the investors are expecting HAL to extend this morning's upward momentum through the end of the week, when October-dated options expire. More specifically, the volume-weighted average price (VWAP) of the calls is $0.47, meaning the buyers will reap a reward if HAL topples the $35.47 level (strike plus VWAP).

On the flip side, the security's near-the-money October 34 put has seen roughly 2,200 contracts traded -- 71% at the ask price. Meanwhile, implied volatility on the soon-to-expire put was last seen 2.2 percentage points higher. The puts crossed at a volume-weighted average price of $0.52, meaning the buyers will profit of HAL sinks beneath the $33.48 level (strike minus VWAP) by the end of the week -- which encompasses HAL's turn in the earnings spotlight tomorrow morning.

Heading into tomorrow's earnings release, the options crowd has been upping their bearish exposure on HAL. On the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the stock's 10-day put/call volume ratio of 0.53 registers in the 67th percentile of its annual range. In other words, options speculators have bought to open HAL puts over calls at a faster-than-usual clip during the past two weeks.

As a result, the equity's Schaeffer's put/call open interest ratio (SOIR) stands at 1.07, in the 81st percentile of its annual range. Or, in simpler terms, short-term options players are more put-heavy than usual at the moment.

On the other hand, the brokerage bunch has grown increasingly optimistic toward HAL. The stock sports 19 "strong buys" and two "buy" endorsements, compared to four lukewarm "holds" and just one "sell" or worse rating. What's more, just this morning analysts at Credit Suisse launched coverage of the stock with an "outperform" recommendation.

Technically speaking, the shares of HAL have spent the past few weeks dawdling between support in the $33.50 neighborhood and resistance in the $34.50 area. However, thanks to this morning's analyst affection, the security is attempting to finish north of this range -- and its formerly supportive 50-day moving average -- for the first time since Sept. 25. At last check, HAL has added 1.9% to wink at the $34.60 level.

Fundamentally, Halliburton has surpassed the Street's bottom-line earnings estimates in each of the past four quarters, according to Thomson Reuters.


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