Oil and gas exploration and development firm EQT Corporation (EQT) is up about 5 percent over the past year, underperforming the overall market. One trader sees shares trending down going into the fall.
That’s based on the September $37 puts. With 86 days until expiration, 7,007 contracts traded compared to a prior open interest of 122, for a 57-fold rise in volume on the trade. The buyer of the puts paid $1.89 to make the bearish bet.
Shares recently went for about $39.50, so the stock would need to drop about 4.5 percent for the option to move in-the-money. The strike price is well over EQT’s 52-week low of $28.10.
Revenue has started to slow as energy prices have come down in the past year, with a 26 percent decline. And shares are currently going for 4 times earnings, but are estimated to jump to 15 times earnings moving forward.
Action to take: Investors may want to avoid energy stocks for the time being. They’re still priced for a bullish market, but global production cuts suggest that prices may need help to move higher from here.
For traders, the September puts look like a reasonable trade here, given the weakness in the energy sector and a potential market selloff. The puts could see mid-to-high double-digit gains before expiration.
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.