Shares of oil services company Baker Hughes (BKR) have been trending higher over the past year. One trader sees the potential for a big move higher in the coming months.
That’s based on the September $33 calls. With 212 days until expiration, 4,164 contracts traded against a prior open interest of 138, for a 30-fold jump in volume. The buyer of the calls paid $2.13 to make the trade.
The stock last went for about $29, so shares would need to rise about $4, or just under 14 percent, for the option to move in-the-money.
Shares are up about 18 percent over the past year, slightly outperforming the S&P 500. However, the company’s profitability has been mixed over the past four quarters, which is why the company has underperformed the energy market.
Action to take: Shares look attractively priced here, at about 20 times forward earnings. The stock is also cheap relative to its revenue, so any improvement in profitability could expand profit margins greatly. Investors can also get a starting dividend yield of 2.6 percent.
For traders, the September calls have over six months to play out, which should be plenty of time to see mid-to-high double-digit gains as the energy sector continues to rally. If energy prices make an extreme move, traders could even see triple-digit returns.
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.