Shares of oil exploration and production company Ovintiv (OVV) are up 87 percent over the past year thanks to a strong energy market. One trader sees the possibility for a short-term drop in the coming weeks.
That’s based on the October $45 puts. With 46 days until expiration, 12,906 contracts traded compared to a prior open interest of 299, for a 43-fold rise in volume on the trade. The buyer of the puts paid $2.43 to make the downside bet.
The stock recently traded for about $50, so the stock would need to decline just over $5, or 10 percent, for the option to move in-the-money. Shares have a 52-week low of $27, so a move lower to $45 is easily possible.
Action to take: For most oil companies, the price movement in oil itself will drive prices in the short term, and Ovintiv is no exception. Oil has started a short-term downtrend in the past few weeks, and that trend may continue for a few more weeks. Investors might want to wait for a drop into the $40 range to look into buying shares.
For traders, the put option is a play on further market downside here. The option can likely deliver mid-double-digit profits. Traders should look to take quick profits, and exit the trade well 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.