Shares of pipeline company Kinder Morgan Inc (KMI) are up about 11 percent in the past year, about in-line with the S&P 500. One trader sees a further rally in shares from here.
That’s based on the April 1 $18 calls. With 30 days until expiration, 6,102 contracts traded against a prior open interest of 145, for a 62-fold increase in trading volume. The buyer of the calls paid $0.18 to make the trade.
Shares recently traded for just over $17, so they would need to rise $1 for the option to move in-the-money. The stock has a 52-week high of just over $19, so it’s certainly possible, but it’s a big price move given the time remaining on the option.
Action to take: With shares trading at 15 times earnings, and with the company growing again, investors may want to consider buying shares here. The company’s dividend gives a starting yield of about 6.5 percent, with some room for increases down the line.
Traders could likely see mid double-digit gains from the call option before expiration. However, traders might want to go further out, to May or June, as the company next reports earnings in late April, which offers the best catalyst for a further move higher 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 of the companies mentioned in this article.