Unusual Option Activity In Southwestern Energy

Shares of Southwestern Energy Company SWN rallied strongly following Tuesday's earnings report, up nearly 6.7 percent on increased production guidance. Even more notable, however, was the unusual call activity.

According to Options and Volatility, 24,554 of the Southwestern Energy August 20 calls traded, versus just 478 open interest, with Southwestern Energy trading just 3,765 calls per day on average. In addition to the increased volume, the implied volatility of the August 20 calls actually increased post earnings, moving from 42.79 a week ago to 43.08.

This set up a covered call opportunity, buying shares of Southwestern Energy and selling a August 20 call for each 100 shares purchased. Options and Volatility noted this captures a 1.86 percent edge and positions bullishly along with the large call buyer, while positioning to capture the spike in implied volatility.

The August 20 calls have a delta of 45, while the covered call position has a slightly more bullish delta of 55.

Shares closed at $19.57 on Tuesday, with the August 20 call strike price 2.2 percent higher than the current stock level.