How call spread is playing Halliburton earnings

A large trade is betting that Halliburton will post good quarterly results next week.

Investitute’s tracking systems today showed that 10,000 Weekly $50 calls expiring on April 28 were bought for $0.63. At the same second, 10,000 Weekly $51.50 calls in the same expiration were sold for $0.24.

This vertical spread cost a net $0.39 to open and is looking for HAL to rally above $50 by the end of next week. The sale of the higher-strike contracts reduces the cost of the long calls but limits potential gains, as the trader will be obligated to sell shares if they rise above $51.50.

The calls lock in the price where the stock can be purchased, gaining with a rally and providing leverage to the underlying shares. But the contracts can quickly lose value if the stock stalls or pulls back.

HAL fell 2.27 percent to close at $47.43 today, declining with the rest of the energy sector as the price of crude dropped. Shares have been range-bound mostly between $48 and $50 for the last month.

The oilfield-services provider is scheduled to report earnings before the market opens on Monday, April 24.