Energy stocks have been trending higher over the past few weeks, including giants like Chevron (CVX). One trader sees shares making a pullback in the weeks ahead.
That’s based on the July 26 $150 puts. With 25 days until expiration, 3,511 contracts traded compared to a prior open interest of 103, for a 34-fold rise in volume on the trade. The buyer of the puts paid $1.03 to make the bearish bet.
Chevron shares recently traded for about $156, meaning shares would need to shed about $6, or about 4%, for the option to move in-the-money. Chevron is currently on the lower end of its 52-week range of $139.62 to $171.70.
Shares of the oil giant are now flat over the past year, about in-line with range-bound energy prices.
However, shares trade at 12 times earnings, a massive discount to the overall stock market. And oil supply and demand is roughly in balance right now, which could keep energy prices from significantly declining anytime soon.
Action to take: Investors may like shares here or on any drop lower. At current prices, Chevron also pays a 4.2% dividend.
For traders, the July 26 $150 puts play to the very short-term possibility of a slight pullback in energy stocks after a recent move higher. The puts could see mid-double-digit returns before expiration.
Traders may also want to use any pullback in shares as an opportunity to make a trade on the long side.
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.