Oil and gas midstream company MPLX LP (MPLX) is up 2 percent over the past year, slightly trending higher even as energy prices have been moving lower. One trader sees possible upside in the weeks ahead.
That’s based on the June 16 $32 calls. With 42 days until expiration, 59,400 contracts traded compared to a prior open interest of 260, for a staggering 248-fold surge in volume on the trade. The buyer of the calls paid $2.65 to make the bullish bet.
Shares recently traded for about $35, so the option is already about $3.00 in-the-money. That suggests that the buyer of the calls took advantage of the lack of time premium attacked to MPLX options.
As an LP, the company is structured to pay out nearly all of its earnings as income to shareholders. At present, there’s an 8.9 percent yield on shares. That high yield may likely lead to a cap in how high shares can move in the coming weeks.
Action to take: Investors looking for high income now can find it with LP and MLPs. However, if energy prices continue lower from here, the payouts may be lowered in the future.
For traders, the option buy looks like an attempt to profit from option mispricing. Traders who are nimble enough may be able to join in, and pocket a small gain, likely under double-digits, in the weeks ahead. Traders interested in playing the big swings in energy prices right now have better plays with conventional energy names.
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.