Oil and gas refiner Valero Energy (VLO) is up 26% over the past year, about in-line with the overall market. One trader sees shares surging in the months ahead.
That’s based on the June $190 calls. With 93 days until expiration, 21,675 contracts traded compared to a prior open interest of 120, for a 180-fold rise in volume on the trade. The buyer of the calls paid $3.25 to make the bullish bet.
Valero shares recently traded for about $166, meaning shares would need to rise about 14.4% in three months. It would also mean shares breaking over their 52-week high of $167.33.
Valero is coming off a rough year, with earnings off 61 percent. Low energy prices have kept a tight spread on refining activity.
However, going into the spring and summer months, energy tends to enjoy seasonal strength. The current rally underway may indicate further upside in the coming weeks.
Action to take: With shares trading at 11 times forward earnings and paying a 2.6% dividend, today’s investors are still getting a good price with more upside ahead.
For traders, the June calls can likely see mid-double-digit returns before expiration, as shares are likely to trend higher in the months ahead. Traders should take quick profits on any big, short-term jump in shares.
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.