Paper materials company
Mercer International (MERC) is down nearly 40 percent over the past year. One trader is betting on a sharp rebound in the coming months.
That’s based on the August $12.50 calls. With 94 days until expiration, 22,725 contracts traded compared to a prior open interest of 146, for a 156-fold rise in volume on the trade. The buyer of the calls paid $0.15 to make the bullish bet.
Shares recently traded for about $9, so they would need to rise $3.50, or about 39 percent, for the option to move in-the-money. The strike price is fairly reasonable given the stock’s 52-week high of $17.50.
The paper goods company trades at about 3 times current earnings, although forward earnings are closer to 9 times. Adding in the 3.3 percent dividend, and it looks like a potential value play here.
Action to take: Investors interested in dividend-paying smaller-cap companies could fare well with shares over time. It’s also possible that there could be a big move coming based on earnings or a buyout offer given the company’s current market cap which explains the unusual options activity.
For traders, the bet is low-priced, but would take a big move in shares to play out. It’s a worthwhile speculation, as it could potentially lead to fast double-digit gains, even if shares don’t rise close to the strike price.
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.