Option Bulls Expect Halliburton Company (HAL) to Weather the Storm

Halliburton Company is down roughly 10% on poorly received M&A news

by Karee Venema

Published on Nov 17, 2014 at 2:31 PM
Updated on Apr 20, 2015 at 5:32 PM

Halliburton Company (NYSE:HAL) has plunged 10.3% today to $49.41, as Wall Street turns its nose up at the company's acquisition of Baker Hughes Incorporated (NYSE:BHI). Sharing in this sentiment is Cowen, which downgraded HAL to "market perform" from "outperform," and slashed its price target to $57 from $70, citing the stock's "limited appeal" during the takeover process. Against this backdrop, the equity has been placed on the short-sale restricted list, and options volume is running at five times what's typically seen at this point in the day.

Despite today's bearish gap, speculators are showing a rare preference for calls over puts. By the numbers, roughly 87,000 calls have changed hands, compared to around 52,000 puts. Short-term contracts are in demand, too, as evidenced by HAL's 30-day at-the-money implied volatility (IV), which is up 0.6% to 38.9% -- in the 97th percentile of its annual range.

Drilling down, Halliburton Company's (NYSE:HAL) November 51 call has seen the most action, with 11,210 contracts on the tape at last check. The majority of these calls have traded at the ask price, IV is higher, and volume outstrips open interest -- signifying buy-to-open activity. Amid today's sell off, delta on the call has dropped to 0.30 from 0.89 at the end of last week, suggesting a less than 1-in-3 chance the option will be in the money at this Friday's close, when front-month options expire.


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