Shares of oil and gas company Devon Energy (DVN) got knocked down nearly 11 percent following their latest earnings report earlier this week. One trader sees shares bouncing higher in the coming weeks.
That’s based on the March $55 calls. With 28 days until expiration, 6,162 contracts traded compared to a prior open interest of 120, for a 51-fold rise in volume on the trade. The buyer of the calls paid $3.60 to make the bullish bet.
Share recently traded for about $57 following their big drop, so the option is just over $2.00 in-the-money. Over the past year, shares have traded between $48.86 and $79.40, so they’re at the lower end of their range.
The company reported that production dropped 2 percent compared to same quarter in 2021, and that 2023 output will be slightly lower due to a fire. While the market dropped on that news, they overlooked the fact that the company’s production costs fell.
Action to take: While there’s some uncertainty over production, that’s creating a reasonable buying point for investors. Plus, at the current price, shares yield about 8.5 percent.
For traders, the March calls are a reasonable bet on a rebound in the coming weeks. While the move won’t be huge since the option is already in-the-money, traders can likely see mid-double-digit returns on the options 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.