RRC Unusual Option Activity Report
I’ve never liked the saying “cold hands, warm heart,” but for stocks like Range Resources Corp (NYSE: RRC) it’s very apropos. With weather forecasts turning decidedly colder in the coming weeks, it opens the door for a rise in natural gas futures and carryover to stocks as well. The carryover has led option traders to continue their bullish bets through rolling.
One of the keys for natural gas production companies like RRC is that they’ve worked on their cost structure. The desire to be profitable at a lower natural gas price has led to major cuts in capex entering 2020. Those cuts have largely allowed these companies to have a great 2020. Those trends coupled with lower production by many oil companies have opened the door for these companies to do well in the intermediate term.
RRC Option Roll
Traders holding RRC long calls have had a good week. The over 20% move in the stock over the past week allows them to take some profits while keeping a foothold in the stock’s movement. This is done through rolling.
An option roll is when the current position is liquidated, and a new position is initiated for a credit. The credit allows the trade risk to be reduced or profits to be booked. The remaining position gives them the opportunity to remain long with little or no risk.
RRC Option Activity
Today, the call volume traded was over eight times the average. Nearly 36% of the volume filled at the bid and 58% between the market. The put-to-call ratio was 0.031. The fact that so much of the volume filled at the bid is concerning until you see the composition of the activity. Here’s a breakdown of the significant activity:
- 15 JAN 21 $8 calls sold @ $0.20 against an open interest of 28,308
- 19 FEB 21 $8 calls BOT @ $0.66 against open interest of 1,159
- 19 FEB 21 $10 calls sold @ $0.16 against open interest of 134
These 9,000 contracts for each option were traded at the same time and filled in one print. That is an indication that it was all one transaction. Since the open interest on the January expiration was higher than the volume, the indication is that the option was sold to close. Since the number of contracts for the February options were greater than the open interest, they were bought and sold to open.
In this case, the January option was sold for less than the $0.40 net cost of the February vertical trade. That means that the trader rolled, not to reduce risk but to provide more opportunity for the stock to move. The selection of the $10 strike gives an indication of the move that is expected.
RRC Technicals
RRC has remained relatively rangebound after an explosive April and May of 2020. The lower end of the range is from $6 to $8, with some tests of $9.40. The price formed a bullish engulfing formation on December 30, 2020 and the price has risen consistently since that date. The price is currently testing the $8 resistance as today’s activity unfolded.
The strike selection on the bullish vertical of $8 and $10 is an indication of the expectation the stock will break resistance and at least test the 52-week high.
Conclusion
Current analyst 2021 annual EPS estimates for RRC is $0.86. That’s quite an improvement of 2020 and 2019. With a 21% revenue growth rate expected in 2021 and a 29.31% 5-year projected EPS growth rate, the company may be poised for a major move in the coming year. The option activity is only a reflection of the near-term potential because of weather trends, but the improved earnings outlook is certainly a positive for a company that has struggled for so many years.
Learn how to deal with uncertain markets by learning about the Vomma Zone. Not a subscriber? Become a TheoTrade member.
Recent Comments