Shares of oil and gas major Occidental Petroleum Corporation (OXY) are up 112 percent over the past year. One trader sees a pullback coming in the next 18 months.
That’s based on the June 2024 $50 puts. With 534 days until expiration, 5,001 contracts traded compared to a prior open interest of 101, for a 50-fold rise in volume on the trade. The buyer of the puts paid $6.45 to make the bet.
Occidental shares recently traded for about $62, so the stock would need to decline $12, or about 20 percent, for the options to move in-the-money.
That’s a reasonable range, given how volatile energy stocks have been in the past year. The only wild card is if more shares will be bought at a lower price by investor Warren Buffett, which may provide a price floor.
Action to take: Shares have been coming down off their recent highs, so interested investors might want to look at buying shares in the low $50 range. The stock has a dividend yield of 0.8 percent, but a lower buy price would push that up to 1 percent.
For traders, a continuation of the current short-term downtrend seems likely. And oil could fall further if the economy goes into a recession this year. That makes these puts a reasonable hedge against uncertainty, while also providing a potential mid-double-digit return for traders in the next few months.
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.