Shares of mill and paper firm Weyerhaeuser (WY) have slid heavily in the past few weeks, coinciding with a massive drop in lumber prices after a massive expansion in the past year. One trader sees the potential for a return to the stock’s recent highs.
That’s based on the March 2022 $40 calls. Expiring in 263 days, over 6,085 contracts traded against a prior open interest of 153 contracts, for a 40-fold rise in volume.
The buyer of the option paid about $1.10 for the contracts. Shares currently trade around $34, having traded as high as $41 in the spring, so a move back to $40 is certainly possible before the option expires next March.
The recent pullback means shares are “only” up 58 percent over the past year, outpacing the S&P 500 by nearly 50 percent. The company has seen double-digit revenue growth and triple-digit earnings growth in the past year on strong demand for shares.
Action to take: At current prices, the company’s recently-boosted dividend has pushed the yield up to 2 percent, so shares may be attractive for income investors here.
The March calls are an inexpensive way to bet on continued high prices for lumber. Thanks to those high prices, lumber processors like Weyerhaeuser can likely still grow their profits and margins, even if lumber prices don’t rally further from here.
Disclosure: The author of this article has no position in the stock mentioned here, but may trade in this company after the next 72 hours. The author receives no compensation from any of the companies mentioned in this article.