Put Volume Spikes on Ultra Petroleum (UPL)—Time to Trade?

07/24/2009 12:01 am EST


Nick Perry

Equity Options Trader, Schaeffer's Investment Research

Ultra Petroleum Corp. (UPL) attracted a tidal wave of put activity on Wednesday. During the course of the session, investors on the International Securities Exchange (ISE) bought to open 17,474 puts on UPL, compared to just six calls. In fact, the stock's total put volume of about 20,000 contracts on Wednesday represented six times its daily average.

UPL price chartThe day's largest transaction was a hefty block of 17,000 September 34 puts, which changed hands around 10:30 am for the ask price of $0.60. Implied volatility rose 1.9% as a result, strongly suggesting that these puts were among those bought to open on Wednesday. UPL was trading at $42.55 when this transaction took place, and it's even higher today, which means these back-month puts are deep out-of-the-money.

Following the day's action, open interest at UPL's September 34 strike actually declined from 17,296 contracts to 12,196 contracts. Despite the large buy-to-open block, it seems as though there were also some massive liquidations at this strike. Nevertheless, this option is still far and away the most popular near-term option on the stock.

Meanwhile, a few minutes after this massive trade, three blocks totaling 1,061 contracts changed hands on the August 39 put for the ask price of $1. These three trades occurred at the same second, although they crossed the tape on three different exchanges—one each on the ISE, the Chicago Board Options Exchange (CBOE), and the Philadelphia Stock Exchange. In total, 71% of the day's volume at this strike changed hands at the ask price, confirming a bias toward buying activity.

Amid this surge of apparently bearish speculation, UPL is struggling to resume its short-term uptrend. The equity has muscled back atop support at its ten- and 20-week moving averages, but it hasn't managed a weekly close above both trend lines since mid-June.

By Nick Perry of Schaeffer’s Trading Floor Blog


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