Energy prices have been rebounding in recent weeks, and one trader sees a possibility to play that trade with Devon Energy (DVN).
That’s based on the December $30 calls. With 113 days until expiration, over 9,360 contracts traded against a prior open interest of 145, for a 65-fold rise in volume. The buyer of the calls paid about $2.39 to make the trade.
Shares recently traded near $28.50, so they would need to rise less than 10 percent to move in-the-money. Given the stock’s 52-week high of $32, it’s certainly possible that this trade could move in-the-money, although shares would need to break higher to make a profit at expiration.
Action to take: The oil and gas exploration company currently pays about a 1.7 percent dividend yield. That’s a decent start for investors looking for income, although many stocks in the energy space pay more and offer more diversification.
The real question is how far shares can rally. If a big move occurs in the months ahead, these December calls should provide high double to low-triple-digit profits.
The trade is likely a reasonable one, but historically energy prices to come down a bit going into the late autumn and winter months, so traders may want to book profits on this trade within a few weeks and look for a stronger trade elsewhere to close out the year.
Disclosure: The author of this article has no position in the company mentioned here, but may make a trade after the next 72 hours. The author receives no compensation from any of the companies mentioned in this article.