Oil and gas giant Chevron (CVX) is down 12 percent over the past year as energy prices have trended lower. One trader is betting on a further decline in the months ahead.
That’s based on the September $105 puts. With 230 days until expiration, 3,000 contracts traded compared to a prior open interest of 1,005, for a 29-fold rise in volume on the trade. The buyer of the puts paid $0.88 to make the bearish bet.
Chevron recently traded for about $147, so whares would need to drop by $42, or about 29 percent, for the option to move in-the-money. The strike price is also significantly below the company’s 52-week low of $139.62.
Operationally, Chevron’s performance mimics the drop in the energy space, with revenues down 18 percent over the past year and earnings off by 42 percent. Shares are fairly inexpensive at 12 times forward earnings.
Action to take: Investors may like shares at current prices or on any drop lower. At current prices, Chevron’s dividend has been pushed up to 4 percent.
For traders, the September puts could see a rise in the coming weeks.
However, shares have some buying strength in the low $140 range, so a quick profit may be best rather than waiting to see if the stock can break lower anytime soon.
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.