Hi-Crush Options Hit Extremes as Stock Pans 2018 Lows

Volatility expectations are ramping up on HCLP ahead of earnings, too

Oct 16, 2018 at 11:21 AM
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The shares of fracking specialist Hi-Crush Partners LP (NYSE:HCLP) hit a year-to-date low of $9.43 on Monday, before settling with a slimmer 5.9% loss at $9.64. The downside didn't deter bullish options traders, though, who rolled the dice on a quick move back into double-digit territory for HCLP stock.

By the time the closing bell sounded, roughly 10,000 calls and 2,471 puts had traded on HCLP -- more than two times what's typically seen. The October 10 call was most active with 6,456 contracts on the tape, due largely to a 5,000-contract block that was bought to open for 19 cents apiece.

If this is the case, breakeven for the call buyer at this Friday's close, when front-month options expire, is $10.19 (strike plus premium paid) -- with profit potential theoretically unlimited north of here. Risk, meanwhile, is limited to the initial cash outlay of $95,000 (number of contracts * premium paid * 100 shares per contract), should HCLP stay in single digits through week's end.

Hi-Crush Partners has been a popular target among options traders, though, with total open interest of 156,719 contracts at a 52-week peak. Breaking it down, calls have been the options of choice, with 97,387 contracts outstanding compared to 59,332 puts -- both of which are at the top of their 12-month ranges, though.

This extreme is also seen in the stock's 30-day at-the-money implied volatility, which hit an annual high of 87.2% earlier. This means short-term options are pricing in extremely elevated volatility expectations at the moment -- due in part to the company's upcoming earnings report, scheduled for release after the market closes on Monday, Oct. 29.

Looking at the charts, HCLP has been making a beeline lower since topping out at an annual high of $16.65 on July 27 -- down nearly 42%. And while the shares gapped below previous support at their 320-day moving average last month, yesterday's sell-off was contained near the stock's negative 10% year-to-date return level.

hclp stock daily chart on oct 16


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