Shares of natural gas gathering, transmission, and storage firm Equitrans Midstream Corporation (ETRN) have traded flat over the past year. One trader sees a rally in the months ahead.
That’s based on the January $12.50 calls. With 134 days until expiration, over 15,420 contracts traded, a 39-fold rise in volume from the prior open interest of 391 contracts. The buyer of the calls paid $0.18 to make the trade.
Shares are currently in the low $9 range, meaning shares would need to jump about 35 percent higher by mid-January for the option to trade in-the-money.
Given the company’s exposure to natural gas, a commodity that tends to rise during the winter months, particularly when winters are cold, this looks like a well-timed trade to take advantage of a seasonal move.
Action to take: The underlying company is attractive here with a 6.4 percent dividend yield. The payout hasn’t changed in the past year, however. On a valuation basis, shares are trading at 7 times forward earnings, making for an inexpensive bet for those who want to get paid to take on the risk of a seasonal move higher in natural gas.
Traders could consider these January calls, given their low price overall. They could deliver high-double-digit profits or even move into triple-digit returns and provide a double. But traders should look to take profits on a spike higher, as shares may not end up moving in-the-money before the trade expires.
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.