Oil and gas exploration and production company Noble Corporation (NE) has seen shares get cut in half over the past year as energy prices have been trending lower overall. One trader sees further weakness over the coming weeks.
That’s based on the April $20 puts. With 38 days until expiration, 9,117 contracts traded compared to a prior open interest of 285, for a 32-fold rise in volume on the trade. The buyer of the puts paid $0.65 to make the bearish bet.
Noble shares recently traded for just under $23, so shares would need to decline by $3, or about 13%, for the option to move in-the-money. The strike price of the option is about 10% lower than Noble’s 52-week low of $22.05.
Although Noble has been able to grow revenues by 45% over the past year, rising costs and lower energy prices have led to a 35% slide in earnings growth. Shares now trade at 16 times forward earnings, on the higher end for a commodity-producing company.
Action to take: Shares are currently in a strong downtrend and have no sign of bottoming out quite yet. Interested investors may want to wait for the decline to flatten out before starting to accumulate shares.
Thanks to the recent selloff, Noble pays a hefty 8.9% dividend. Income investors should be cautious given the downtrend in shares.
For traders, the April $20 puts are well positioned for a further decline in the markets over the coming weeks. The options are inexpensive enough to see mid-to-high double-digit returns.
Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any company mentioned in this article.