RRC – Range Resources Corp. – Frenzied options activity on the Texas-based independent oil and gas exploration and development company ensued right out of the gate this morning with shares of the underlying stock rallying 2.65% to $38.22 by 12:20 pm ET. Range Resources’ shares fell sharply yesterday after the firm posted weaker-than-expected earnings for the second quarter and said it plans to increase spending in 2010. An analyst at Canaccord Genuity Corp. cut RRC to ‘hold’ from ‘buy’ and assigned its shares a 12-month target price of $41.00 this morning. However, a number of options investors populating the August contract purchased calls to position for continued bullish movement in the price of RRC’s shares. The call buying action may be taken as a sign that some investors are not expecting Range Resources’ shares to remain depressed through August expiration. Optimists picked up approximately 1,600 calls at the August $39 strike for an average premium of $1.03 apiece. Investors long the calls are poised to profit should shares increase 4.7% over the current price of $38.22 to surpass the average breakeven point to the upside at $40.03 by expiration day. Trading traffic in near-term call options is heaviest at the higher August $40 strike where more than 13,000 contracts changed hands by 12:25 pm ET. It looks like bulls purchased roughly 8,800 of the August $40 strike calls for an average premium of $0.78 a-pop. Call buyers at this strike make money if, by expiration, RRC’s shares rally 6.7% to trade above the average breakeven price of $40.78. The surge in demand for option contracts on Range Resources Corp. fueled a 10.2% increase in the stock’s overall reading of options implied volatility to 44.02%.
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Andrew Wilkinson is the senior market analyst at Interactive Brokers Group, where he provides daily commentary and analysis on U.S. equity options trading throughout the trading day. Andrew provides webinars designed to explain option-related trading scenarios covering futures, fixed income, forex and equities.
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