Oil giant BP (BP) has popped higher nearly 10% in the past month, as oil prices have jumped higher. One trader sees shares pulling back in the months ahead.
That’s based on the March 21 $28 puts. With 52 days until expiration, 14,054 contracts traded compared to a prior open interest of 307, for a 46-fold rise in volume on the trade. The buyer of the puts paid $0.37 to make the bearish bet.
BP shares recently traded close to $31.50, so shares would need to decline by $3.50, or about 11.1%, for the option to move in-the-money. The strike price of the option is right near BP’s 52-week low of $27.82.
Despite a weak market for oil, BP is only down about 12% over the past year. However, earnings have dropped by 95% and revenues are off by 11%.
That suggests that any prolonged weakness in the energy markets could send shares lower again. That’s also the scenario that could happen if production soars in the U.S. from increased permitting.
Action to take: BP shares look attractive at 8 times forward earnings and with a hefty 6% dividend. But shares aren’t out of the woods yet until the energy market looks more attractive.
For traders, the March $28 puts are well positioned for any further weakness in the energy space in the months ahead.
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.