Private prison and security firm GEO Group (GEO) is up over 180% in the past year, fueled with a massive move higher after the election. One trader sees further upside in the months ahead.
That’s based on the June 20 $40 calls. With 158 days until expiration, 10,002 contracts traded compared to a prior open interest of 272, for a 37-fold rise in volume on the trade. The buyer of the calls paid $3.20 to make the bullish bet.
GEO shares recently popped higher to $30, hitting a 52-week high of $30.91, so shares would need to rally another $10, or about 33%, for the option to move in-the-money.
Operationally, GEO Group has had a lackluster year. Revenues rose by just 0.1%, and earnings grew by 7%. Yet soaring shares mean that the stock went from trading at a reasonable 8 times earnings to over 100 times earnings.
Action to take: Shares are moving based on the prospect of a “law and order” presidency under Donald Trump, not on the company’s fundamentals. Momentum investors may be able to grab some more upside here, but fundamental investors should wait for a pullback.
For traders, the June $40 calls play well to further momentum. The options can likely deliver mid-double-digit returns in the months ahead. Traders should look to take profits if the rally in GEO shares starts to roll over.
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.