Rolling to Stay Long in XTO Energy

XTO Energy Inc. (XTO) has not announced significant news in a of couple weeks, but rolling activity we saw in the oil and gas company on Wednesday suggests at least one investor expects longer-term upside in the stock.

The January 47 calls traded 22,250 times versus open interest of 23,878 contracts, and we saw two large blocks comprised of 10,000 contracts cross the tape for 41 cents (near the bid price). These calls closed up roughly 10 cents on the day, and have a delta of 22. That means with the stock up approximately 90 cents at the close Wednesday, these calls climbed less than the delta would suggest.

This investor most likely sold these out-of-the-money calls to close in order to fund another purchase of 10,000 February 44 calls. These near-the-money calls were home to open interest of 1,135 contracts, indicating the investor traded the options to open. The investor bought these calls for $2.08 per contract, which means that the breakeven on this trade is $46.08. Keep in mind that bullish investors who bought these options could choose to take profits if the stock pops up significantly before February expiration.

By selling two January 47 calls to buy one February 44 call, the investor pays a net debit of $1.25 per contract. XTO shares climbed approximately 2% on the day Wednesday to $43 (the investor is betting on a 7% gain in the stock throughout the next two months).