Traders Buying Out-of-the-Money Calls on Weatherford International Ltd. (WFT)

09/30/2009 12:01 am EST


Elizabeth Harrow

Director of Digital Content, Schaeffer's Investment Research, Inc.

Weatherford International Ltd. (WFT) was a popular choice among call traders on Friday. During the course of the day, traders on the International Securities Exchange (ISE) bought to open 11,327 calls on WFT, compared to just 921 puts. The equity's single-day call/put volume ratio of 12.30 reveals an unmistakable bias for bullish bets over their bearish counterparts.

WFT price chartFriday's most active call was WFT's November 22 strike, where 6,222 contracts changed hands. About 82% of the volume here traded at the ask price, revealing a bias toward buying activity, and implied volatility rose 3% as a result. Open interest at this strike climbed over the weekend from 13,402 contracts to 17,809, confirming that new long calls were added here last Friday.

Also in heavy rotation last Friday was WFT's January 2010 24 call, where 4,227 contracts traded on open interest of 5,031. A solid 85% of these calls traded at the ask price, sending implied volatility up 1.6% by the close. Open interest at this strike rose to 7,825 contracts as a result.

With WFT trading narrowly above $21 at last check, both of these popular call strikes are currently out of the money. In fact, the stock has been stymied by resistance in the low-20s since May. WFT retreated last week to support at its ten-week moving average following its most recent rejection at the $23 level. During the short term, a continued accumulation of out-of-the-money calls could exacerbate the security's struggles.

By Elizabeth Harrow of Schaeffer’s Trading Floor Blog

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