Shares of oil and gas major Conoco Phillips (COP) have nearly doubled over the last year thanks to strong oil and gas prices. One trader sees further upside ahead for the company.
That’s based on the September $120 calls. With 24 days until expiration, 12,135 contracts traded compared to a prior open interest of 218, for a 56-fold rise in volume on the trade. The buyer of the calls paid $0.61 to make the bet.
Shares recently traded around $105, so they would need to rise $15 for the option to move in-the-money. With a 52-week high of $124, such a move is possible. However, it’s more likely that there’s simply an uptrend in the next few days that leads the option to bounce higher.
Action to take: Long term investors may like shares here. The stock trades at under 7 times forward earnings. Plus, the company has a 1.9 percent dividend yield right now, with some room for more growth in the future.
For traders, the call options can potentially deliver mid-double-digit returns in the coming weeks. As it’s unlikely to move in-the-money before expiration, traders should look to profit within a few days to take advantage of the low-cost option.
With today’s volatile markets, a big one-day move in oil could lead to returns, and the trade could be replicated with options with a strike date further out.
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.