Call Buyers Score Big On Golar LNG Limited (USA) (GLNG) Burst

Did Golar LNG Limited (USA) (GLNG) shorts buy well-timed options insurance?

Jan 22, 2016 at 2:14 PM
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Natural gas stock Golar LNG Limited (USA) (NASDAQ:GLNG) has exploded today -- and was temporarily halted -- gaining 44% to hit $17.20, and putting it on pace to close above its 30-day moving average for the first time since Nov. 11. Boosting the shares is a Memorandum of Understanding the company just signed with sector peer Schlumberger Limited. (NYSE:SLB), which is rallying in its own right. As one might expect, this outsized move has led to extreme activity in GLNG's option pits, especially on the bullish side. 

For starters, call volume is on pace to hit an annual high by day's end, with over 18,000 contracts traded already -- 14 times the average midday total. Calls make up seven of GLNG's 10 most popular strikes, and the February and March 17.50 calls are in the lead. Buyers of the calls are looking to profit on a move above $17.50 in the short term.

Moreover, over the past 10 sessions, the February and March 17.50 calls added the most open interest of any GLNG strike. In fact, roughly 3,700 contracts were bought to open at the February 17.50 call on Wednesday, Jan. 13. Meanwhile, close to 2,900 March 17.50 calls were bought to open on Wednesday, Jan. 20. 

Reinforcing this is data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). The stock's 10-day call/put volume ratio across these exchanges now stands at an astounding 35.53, which tops 85% of all readings from the past year. In other words, calls have been bought to open at a faster-than-usual clip during the past two weeks.

However, prior to today, GLNG hadn't been north of $17.50 since mid-December, and just touched a five-year low of $9.42 on Wednesday -- meaning the 17.50-strike calls were out of the money when they were purchased. Plus, short interest on GLNG jumped by almost 17% during the past two weeks, and now represents almost a week's worth of buying power, at the security's normal daily volumes. As such, the recent affinity for long calls could be attributable to short sellers -- wisely, it seems -- hedging their bearish bets.

Whatever the motive, Golar LNG Limited's (USA) (NASDAQ:GLNG) short-term options aren't cheap. The security's Schaeffer's Volatility Index (SVI) of 131% stands higher than 98% of all other readings from the past year, suggesting traders have been pricing in historically high volatility expectations.

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