March call buying suggests rally.
Over 6,800 contracts traded on the March 2020 $29 call options on Enterprise Products Partners (EPD). Against the prior open interest of 879, the trading marks an eight-fold jump in volume.
Shares of EPD currently trade just under $28, so the options are a bet on another $1 rise in shares in the next 99 days before expiration, or a move just 4 percent higher. Shares have traded as high as $30 in the past year.
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While the option could offer a profit in the next 100 days, without shares breaking to new highs, it will be somewhat limited, even at the cost of $0.60, or $60 per contract.
Action to take: As a company providing services to producers and consumers of oil and natural gas, the company is in a reasonably good position to continue profiting in today’s energy market. With nearly 20,000 miles of natural gas pipelines and 5,300 miles of oil pipelines, as well as other tankers and trucks, EPD should benefit from today’s high energy production in the U.S.
Structured as an LP, the company will best benefit income-oriented shareholders, who can pick up a 6.6 percent dividend yield at today’s prices. And given how insiders love the space, it’s one that will likely continue to benefit, even if fuel prices stay flat.
Given the high dividend yield, and the propensity for shares to trade as high as $30, the March $29 call trade looks okay as an options trade, but not phenomenal. Speculators can make the trade, but should expect mid-double digit returns of 30-40 percent at best.