Unusual Options Activity: Goodyear Tire & Rubber (GT)

Shares of auto parts supplier Goodyear Tire & Rubber (GT) have been on a tear this year, more than tripling the returns on the S&P 500. One trader sees that overall trend continuing in the next few days following last week’s market pullback.

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  • That’s based on the December 10 $22 calls. With 9 days until expiration, over 5,210 contracts traded against an open interest of 107, for a 49-fold rise in volume. The buyer of the calls paid $0.35 to make the trade.

    Shares last traded just under $21, so they would need to rise a little over 5 percent in the next few days for the option to move in-the-money. With a recent 52-week high just under $25 set in recent weeks, such a move is potentially possible.

    Even with the big rally in shares over the past year, the company has been growing at a fast clip, with revenues up over 42 percent. And shares still trade at less than 8 times forward earnings, offering a relative value play at today’s prices as well.

    Action to take: With a reasonable value, solid growth, and rising demand for auto parts right now, shares look set to continue to trend higher. Over the longer-term, shareholders can do well, although the stock doesn’t pay a dividend at present.

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  • Traders may like the short-term calls. They’re cheap and could double in the next few days, offering triple-digit returns. Traders might want to consider paying up for more time for a bigger overall move in shares given the long-term uptrend.

     

    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.