Oil and gas drilling services provider Patterson-UTI Energy (PTEN) is down 25% over the past year. One trader sees shares declining over the coming weeks.
That’s based on the August 16 $10 puts. With 25 days until expiration, 48,155 contracts traded compared to a prior open interest of 711, for a 68-fold rise in volume on the trade. The buyer of the puts paid $0.20 to make the bearish bet.
Patterson-UTI Energy shares recently traded for about $10.75, so they would need to decline by $0.75, or about 7%, for the option to move in-the-money. Shares recently popped higher, but have been trending lower over the past year, with a 52-week low of $9.51.
Energy prices have been relatively calm over the past few years, and oil prices have remained near the lower end of their trading range.
Shares look attractive at 11 times forward earnings. But PTEN’s earnings growth has been cut in half over the past year.
Action to take: Investors interested in shares may be able to get them a bit more cheaply in the months ahead. Shares do yield 2.9%, but the dividend could top 3% on a further drop lower in shares.
For traders, the August $10 puts could play out well in the short-term. While energy prices typically rally over the summer, they’ve been trading relatively weakly this year, which suggests shares will trend lower.
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.