Unusual Options Activity: AES Corp (AES)

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  • Shares of AES Corp (AES) have rallied by over 25 percent in the past few months. At least one trader sees the utility company pulling back from these levels.

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  • That’s based on the January 15th 2021 $20 puts. Expiring in just 30 days, over 4,050 contracts traded against a prior open interest of 186, for a 22-fold rise in volume. With shares at $21.65, shares would need to fall nearly 8 percent for this trade to move in-the-money.

    The option buyer paid about $0.28 for the contracts. Shares of the utility are up about 12.6 percent in the past year, just slightly underperforming the S&P 500.

    Action to take: Utilities can be slow-moving companies both up or down. A few utilities have seen a drop on a reduced dividend payout over the past year. While AES has posted a loss recently, it is still bringing in sufficient revenue to cover its recently-raised 2.8 percent dividend yield for the time being.

    That said, this is an inexpensive option play for someone concerned over the market’s current valuation and who expects a broad pullback. In that case, however, a bigger percentage decline will be more likely to occur in the tech space, not the utility space. If anything, investors should look going long AES on a pullback to the stock’s 50-day moving average.

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