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Bulls Charge Spectra Energy Options Pits


Heavy call activity seen at the SE September 33 call.

A stampede of bullish traders have darted toward Spectra Energy Corp. (NYSE:SE) today, snatching up roughly 15,000 calls -- 12 times the intraday norm and more than 15 times the number of puts -- as of noon eastern time. Almost all of this activity was seen at SE's September 33 call, where nearly 14,000 contracts have changed hands at a volume-weighted average price (VWAP) of $0.43. Of these contracts, 97% went off at the ask price, implied volatility has increased 3.3 percentage points, and volume exceeds open interest. Collectively, this points to buy-to-open activity.

Today's call buyers expect SE -- currently perched at $30.79 -- to climb past its current 52-week peak of $32.05, and finish above the breakeven price of $33.43 (strike price plus the VWAP) by the close on September 20, when the option expires. If SE hangs out below the 33 strike, however, the call buyers stand to lose their initial premium paid.

On the charts, Spectra Energy has underperformed the broader S&P 500 Index (INDEXSP:.INX) by 4 percentage points during the past month. Still, options traders have high hopes for the stock, which is up 12.7% year-to-date. According to SE's 50-day International Securities Exchange (ISE)/Chicago Board Options Exchange (CBOE)/NASDAQ OMX PHLX (PHLX) call/put volume ratio of 17.83, traders have bought to open almost 18 calls for every put over the last 10 weeks. This ratio ranks in the 71th percentile of its annual range, conveying an elevated pace of call buying.

Moreover, four of the 10 analysts weighing in on SE give it a "strong buy" endorsement, one rates it as a "buy," and five consider it a "hold." There are no "sell" ratings to speak of, and in fact the shares were initiated with an "accumulate" rating at Tudor Pickering this morning.

This article by Milissa Hudepohl was originally published on Schaeffer's Investment Research.

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