Oil and gas refining company CVR Energy (CVI) is down over 30% in the past year, far underperforming a rallying stock market. One trader sees shares trending lower over the coming weeks.
That’s based on the October 18 $22.50 puts. With 39 days until expiration, 8,302 contracts traded compared to a prior open interest of 113, for a 73-fold rise in volume on the trade. The buyer of the puts paid $1.15 to make the bearish bet.
CVR shares recently traded for about $23, so they would need to drop by $0.50, or just over 2%, for the option to move in-the-money.
The stock has been trending lower, and the strike price is right near the 52-week low of $22.66.
Operationally, CVR has struggled, as refining companies tend to see narrow margins when oil prices are flat or declining. Earnings have dropped 83% over the past year, amid a 12% drop in revenues. Shares trade at about 5 times earnings at current prices.
Action to take: While shares pay an 8.2% dividend at current prices, a continued slide in earning could put that payout at risk in the quarters ahead. Investors should look to avoid refining companies until oil prices show signs of strength, which can be better for refiner margins.
For traders, the October $22.50 puts are well positioned for further market weakness over the coming months. The options can likely see mid-double-digit returns over the coming weeks, and stand a strong chance of moving in-the-money.