Shares of railroad Union Pacific Corporation (UNP) are down about 20 percent over the past year. One trader sees a rebound, although it may take two years to play out.
That’s based on the January 2025 $220 calls. With 696 days until expiration, 4,100 contracts traded compared to a prior open interest of 192, for a 21-fold rise in volume on the trade. The buyer of the calls paid $22.80 to make the bullish bet.
Shares recently traded for just over $200, so the stock would need to rise about 10 percent for the option to move in-the-money. The stock has a 52-week high just under $279.
The railroad trades for about 18 times earnings. Revenue rose 8 percent in the last year, but total earnings slid about 4 percent. Rail traffic can be tied to the strength of the economy, as more goods are shipped during expansions.
Action to take: The railroad is part of an oligopoly, and is well-managed, earning a 28 percent profit margin, which is strong for a capital-intensive operation like a railroad. Shares look like a worthwhile buy in the $200 range, and the stock yields about 2.6 percent at current prices.
For traders, the calls are well positioned for a move higher in shares, potentially as soon as the next few months. Railroad stocks have been slammed in recent sessions following a series of derailments, largely from competitors of UNP. Look for high double-digit returns on the options to take profits.
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.