Energy Transfer, Williams Options Pits Erupt Amid Legal Wranglings

A judge's comments have boosted Energy Transfer Equity LP (NYSE:ETE), but burned Williams Companies Inc (NYSE:WMB)

Jun 21, 2016 at 2:27 PM
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Energy Transfer Equity LP (NYSE:ETE) has caught fire, after a Delaware judge weighed in on the company's attempt to back out of its buyout agreement with Williams Companies Inc (NYSE:WMB). Specifically, the judge reportedly said the decision will be based on whether ETE is attempting to scuttle the deal on purpose, or is being forced due to unforeseen cost considerations. Amid the legal drama, the options pits for each stock are heating up.

As alluded to, ETE is surging, last seen nearly 17% higher at $14.26. In fact, the stock is on pace for its loftiest close of the year, and could topple its 200-day moving average for the first time since last July.

ETE options are crossing at nearly triple the expected intraday rate. According to International Securities Exchange (ISE) data, traders are buying to open the now in-the-money July 12.50 call, banking on extended upside through the close on Friday, July 15. Others may be purchasing fresh positions at the July 11 put, anticipating (or hedging against) a sharp short-term downturn.

In recent weeks, bullish options traders have taken control of ETE's options arena. Specifically, across the ISE, Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), speculators have bought to open roughly nine calls for every put in the last 20 sessions.

While Energy Transfer Equity LP booms, WMB has gone bust. The stock is down 3.4% at $21.57, and earlier landed on the short-sale restricted list. In fact, the shares appear ready to settle south of their 40-day trendline for the first time since early April.

WMB options traders have gone into overdrive, with intraday volume at nearly quadruple the expected amount. Buy-to-open activity is detected among bulls at the weekly 7/29 21-strike call, while bears are purchasing fresh bets at the July 20 put. Meanwhile, a block of 2,000 contracts was sold to open at the weekly 7/22 19.50-strike put, suggesting the option player anticipates limited downside over the next five weeks.

Taking a step back, call buying has been all the rage on Williams Companies Inc of late. Over the prior 10 trading days at the ISE, CBOE, and PHLX, more than 5,500 fresh calls have been purchased, compared to roughly 100 puts. The resultant call/put volume ratio of 53.84 ranks at the top of its annual range.

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