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McMoran Exploration's Strategic Options

Option Watch: McMoran Exploration's Strategic Options

Chris Tyler, Optionetics.com
March 25, 2011

McMoran Exploration (MMR), an oil and gas outfit and constituent of the SP-500 saw bulls jumping on board the name in well-above normal call activity Thursday. Shares gushed by 2.20% on heavy volume as rumors of “takeover chowder” were served around trading desks far and near. Option traders did more than their share of sampling as overall contract volume swelled by more than 900% on nearly 39,000 with calls outpacing puts by a fairly heft four-to-one margin.

Thursday’s most popular venues with bulls willing to push already slightly steep but range bound implieds up a couple points were the OTM April 19 and May 20 calls. For its part and with shares closing at 17.66, the front month contract saw volume and likely fast money turnover as well of 8,700 compared to open interest of 1,000.

Priced at $0.41 on 52% IV, bulls holding the April contract long will need a move of 12% by expiration in order to capture a double in value. Looking out and up, the May 20 call which saw trading of 5,300 versus open interest of 3,300 will need shares of MMR to move 20% - 21% within the next 57 calendar days if a closing price of $0.67 per contract on implieds of 54% are to change hands for $1.34.

Shown below we’re looking at the weekly view of MMR. Based on this technician’s discretionary eyeing of the chart, the stock looks set to stage a breakout from a smaller ascending congestion pattern or triangle built within a larger weekly up-channel. The annotations A19C and M20C mark where shares will need to climb to by each contract’s expiration in order to realize a double.

Figure 1: McMoran (MMR) Weekly Up-Channel

Personally, the relationship of each long call to MMR’s weekly chart doesn’t look out of the picture. On the contrary, with both price objectives within the up-channel and in appreciating past multi-week spikes which were good for testing the upper angular resistance line; I’d say those bulls could stand a better shot at their speculations.

On the other and equally relevant hand, seeing how “takeover chowder” is typically a fishy business, MMR options maintain mixed pricing, one point wide strikes and fairly decent liquidity; putting a cap on any potential gushers such as with a vertical or long call condor, look a bit more appetizing to this strategist.

Chris Tyler
Senior Options Writer, former Market Maker & fulltime Option Hedge Hog Advocate
Optionetics.com ~ Your Options Education Site