Unusual Options Activity: Targa Resources Group (TRGP)

Big bet on shares rallying through October.

On Thursday, a large bet was made on shares of Targa Resources Group (TRGP) continuing its recent rally higher.

Over 5,250 of the October $43 call options traded hands, against an open interest of 242—making for a 21-fold increase in volume. With a current share price around $40.50, this is a bet that shares will move at least 6 percent higher in the next 84 days.

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  • Targa is a storage and transport company for natural gas and oil, with a focus on large shale plays in Texas and Oklahoma. It has over 30,000 miles of pipeline, six terminals, and over 47 natural gas processing facilities. The company makes fee-based revenue for transporting and storage of oil and gas, and has managed to stay profitable as natural gas has slid to multi-year lows.

    Action to take: The out-of-the-money option looks attractive, as shares have been trending up in recent weeks. Common shares, however, yield 9 percent, an unusually high yield for a traditional C-corp stock. Other energy infrastructure companies offering high yields typically structure themselves as partnerships.

    With a likelihood of shares rallying, the shares look better than the option thanks to the high yield investors can get while waiting for a move higher.