Shares of oil and gas exploration company EQT Corporation (EQT) are up 90 percent over the past year. One trader is betting that shares will rebound back to their 52-week highs in the coming months.
That’s based on the December $40 calls. With 150 days until expiration, 4,632 contracts traded compared to a prior open interest of 101, for a 46-fold rise in volume on the trade. The buyer of the calls paid $4.90 to get into the position.
Shares currently trade just under $37, so they would need to rise less than 10 percent for the option to move in-the-money between now and December. The $40 strike price is still well under the stock’s 52-week high just over $50.
The exploration company is not yet profitable, but strong energy prices have led to a 121 percent surge in revenue in the past year. And shares trade at less than 12 times forward earnings.
Action to take: Shares look reasonably valued here after pulling back sharply in the past few weeks. Plus, the stock yields about 1.4 percent here, and a dividend payout could increase over time as the company becomes profitable.
For traders, the December calls look attractive. Energy prices have come down sharply on recession expectations, but could rise this winter given the current geopolitical outlook. Traders can likely see mid-to-high double-digit gains on this option 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.