Shares oil and gas exploration company Diamondback Energy (FANG) are up about 5 percent over the last year, significantly lagging others in the energy space. One trader sees a decline for the stock in the weeks ahead.
That’s based on the March $135 puts. With 66 days until expiration, 7,643 contracts traded compared to a prior open interest of 110, for a 70-fold rise in volume on the trade. The buyer of the puts paid $10.30 to make the trade.
Shares recently traded for about $134, meaning the option is already about $1.00 in-the-money. Shares have a 52-week low of about $104, so there’s room for more downside on the options should the stock trend lower.
Operationally, the company is doing fine. Earnings rose 82 percent last year and revenues rose by over 30 percent. However, energy prices tend to move with sentiment in the energy space, and a slowing economy has been weighing on oil prices.
Action to take: Investors may like shares on a further pullback, when they can get a dividend yield closer to 7 percent from the current 6.5 percent.
Traders may like the puts as a short-term bet against oil following its strong performance last year and amid the broader picture of a slowing economy. Traders can likely nab mid-double-digit gains with this March $135 put trade.
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.