Shares of oil and gas giant British Petroleum (BP) have nearly doubled in the past year on the back of rising energy prices. One trader sees that trend continuing for some time.
That’s based on the January 2024 $25 calls. With 822 days until expiration, 2,540 contracts traded, a 25-fold jump in volume over the prior open interest of 103. The buyer of the calls paid $6.57 to make the trade.
With shares going for about $29.50, a 52-week high, the options are about $4.50 in-the-money, and should rise penny-for-penny with shares, less any declining time premium on the trade.
Even with the big rally in shares, the company trades at less than 9 times forward earnings, and just 0.5 times its price to sales, an excellent discount to the overall market right now.
Action to take: Income-focused investors may like shares here, as the company just upped its dividend to $1.31 annually, for a 4.5 percent yield right now. With a payout ratio of about 50 percent of the company’s earnings, further increases are possible if energy prices continue to rise.
Investors and traders alike may like the January 24 calls, given the long time until expiration. They’re a less expensive way to bet on shares moving higher from here. While the trade is already in-the-money, further rises in share prices can leverage small moves in shares into a larger move.
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.