Unusual Options Activity: Diamondback Energy (FANG)

Shares of energy exploration and development company Diamondback Energy (FANG) are up 125 percent over the past year on a strong energy market. One trader sees the potential for a move even higher.

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  • That’s based on the June $120 calls. With 168 days until expiration, 3,663 contracts traded against a prior open interest of 102, for a 36-fold rise in volume. The buyer of the calls paid $10.65 to make the trade.

    While shares have moved higher in the past year, the company has seen revenue surge 165 percent. However, the company isn’t yet reporting a full year profit, coming off of 2020’s dismal energy market. Nevertheless, shares do trade at an estimated 6 times forward earnings, making shares still look inexpensive here.

    Action to take: Investors may like shares here. The company recently increased its dividend, although the starting yield here just under 2 percent is hardly the highest in the energy sector. There’s likely more upside in the next year as oil prices remain strong.

    Traders may like the calls. Shares would need to rise just under 10 percent from their current price of $111 for the options to move in-the-money. Traders should look for mid-to-high double-digit yields in the months ahead, and look to take some quick profits should the option move in-the-money.

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    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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