Unusual Options Activity: Aflac Incorporated (AFL)

Shares of insurer Aflac Incorporated (AFL) outperformed the overall stock market in the last year. One trader sees the possibility of that outperformance continuing in the next few months.

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  • That’s based on the May $65 calls. With 127 days until expiration, 18,815 contracts traded compared to a prior open interest of 316, making for a 60-fold jump in volume. The buyer of the calls paid $2.08 to make the trade.

    With shares at a 52-week high around $63, it would only take a $2 rally, or less than half a percent, for the options to move in-the-money. Given the uptrend in shares, which has continued in recent weeks even as tech has sold off, that’s a move very likely to play out.

    Despite the company’s strong performance, shares still only trade at 11 times forward earnings, and the company trades just over book value, a conservative measure of the value of the firm’s total financial assets.

    Action to take: Investors may like shares here. Besides grabbing a 2.5 percent dividend yield, the company has a history of raising its payout over time. That makes for an attractive long-term dividend growth play.

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  • For traders, the uptrend looks in place and strong. That makes the May $65 calls an attractive play on what’s usually a slower-moving stock. Traders can likely nab mid-to-high double-digit returns well before expiration.

     

    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 of the companies mentioned in this article.

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