Oil and gas refining giant Valero Energy Corporation (VLO) is up 30% over the past year, slightly beating the S&P 500’s return. One trader sees shares trending higher through the end of the year.
That’s based on the December 20 $175 calls. With 156 days until expiration, 10,247 contracts traded compared to a prior open interest of 423, for a 24-fold rise in volume on the trade. The buyer of the calls paid $4.10 to make the bullish bet.
Valero shares recently traded for about $150, so they would need to rise by $25, or about 17%, for the option to move in-the-money.
That would be close to Valero’s 52-week high of $184.79, set back in April before a sharp downturn. Shares have started to trend higher in recent sessions.
At current prices, Valero is priced at 10 times forward earnings and just 0.4 times its price to sales. Energy prices have been somewhat down over the past few months, but oil has started to show signs of life again.
Action to take: Investors may like shares here, as the stock looks ready to continue trending higher and breaking the downtrend of the past few months. Valero also pays a 2.9% dividend at current prices.
For traders, the December $175 calls are reasonably positioned for a move higher, and could see mid-double-digit returns if shares continue their recent trend higher.
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 company mentioned in this article.
