Shares of oil and natural gas exploration company
Devon Energy (DVN) have been in a steady uptrend over the past year. One trader sees the strong prospect for a further rally.
That’s based on the January 2023 $35 calls. With 220 days until expiration, 72,384 contracts traded compared to a prior open interest of 248, for a staggering 292-fold rise in volume on the trade. The buyer of the calls paid $39.70 to make the bet.
Shares last traded for around $74, meaning that the option is about $39 in-the-money already. That leaves very little time premium, so any modest move higher in shares should lead to the option moving higher.
The stock has a 52-week high close to $80, so it’s possible the option could move another $6 higher at least before expiration. A breakout to new all-time highs could lead to even higher returns, potentially in the mid-double-digit range.
Action to take: Investors may like shares here, given how attractive the company has been and is likely to perform operationally. Profit margins have hit 24 percent, and revenues are up 74 percent in the past year. Plus, shares yield 6.7 percent here.
For traders, the January $35 calls can likely earn a decent profit, but are somewhat expensive to get into, even if they don’t have much premium to them. Traders putting up less capital per trade may want to consider using a higher strike price for a further rally in shares in the back half of the year.
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.