Shares of tobacco product company Philip Morris International (PM) are down about 11 percent over the past year. One trader sees a rebound in the coming weeks.
That’s based off of the November 18 $90 calls. With 31 days until expiration, 10,359 contracts traded compared to a prior open interest of 626, for a 17-fold rise in volume on the trade. The buyer of the calls paid $1.42 to make a bet on the option.
Shares recently traded for just over $85, so they’d need to rise $5, or about 6 percent, for the option to move in-the-money. The stock hit a 52-week low at the end of September just under $83 per share.
There’s likely room for the company to rise, although that will likely depend on the overall market. Revenue and earnings growth are slow-and-steady, in the low-single-digit range. And shares aren’t expensive at 14 times earnings, where they’re at the low end of the company’s valuation over the past two years.
Action to take: Tobacco stocks are seen as a defensive play. Right now, PM’s yield has been pushed up to 5.8 percent, so adding a rally on top of that could lead investors to a market-beating return when stocks start to recover.
For traders, the options don’t have much time to play out, but are inexpensive enough for mid-double-digit gains on a bounce off of today’s oversold level for shares in the next month.
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.