Unusual Options Activity: Dominion Energy (D)

Utility company Dominion Energy (D) is down over 22 percent this year, as rising interest rates have hit interest-rate sensitive stocks hard. Shares have started to move higher, and one trader sees a continued rally higher in the months ahead.

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  • That’s based on the April 2024 $52.50 calls. With 142 days until expiration, 10,001 contracts traded compared to a prior open interest of 274, for a 37-fold rise in volume on the trade. The buyer of the calls paid $0.70.

    Dominion shares recently traded for about $47, so shares would need to rise about $5.50, or about 12 percent, for the options to move in-the-money. The strike price is still well under the 52-week high of $63.94.

    Operationally, the utility has been a slow-growth player. Rising energy prices in the last year have also weighed on earnings, and revenues are off by 4 percent.

    However, population growth trends in Dominion’s service area makes it a relatively strong play in the utility space.

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  • Action to take: The drop in shares has pushed the dividend up to about 5.7 percent. And shares trade at about 15 times earnings, an inexpensive valuation for a utility. Shares can likely trend higher as interest rates decline further in the months ahead.

    For traders, the April calls are a bit aggressive, but given the selloff and early recovery so far, could still be a big winner. The options can likely see mid-to-high double-digit returns.

     

    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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