Oil and gas producer Phillips 66 (PSX) has underperformed the market over the past year, returning just 6 percent. One trader sees the potential for a move higher.
That’s based on the February $135 calls. With 86 days until expiration, 11,002 contracts traded compared to a prior open interest of 161, for a 68-fold rise in volume on the trade. The buyer of the calls paid $0.95 to make the bullish bet.
Phillips 66 recently traded for just over $116, so they would need to rise nearly $20, or just over 17 percent, for the option to move in-the-money. The strike price is also about $10 higher than the 52-week high of $125.19.
It’s possible that shares trend higher. But oil prices have been trending lower in recent weeks. While OPEC has been keeping production tight, global inventories have continued to rise. That’s reflected in the company’s financials, with both earnings and revenues slightly down over the last year.
Action to take: Investors may like shares here as a short-term trade. The stock has been range-bound and is moving higher off the low end. Shares could move into the low $120 range in the coming weeks. Plus, Phillips 66 pays a 3.6 percent dividend.
For traders, the February calls are poised for a solid short-term bounce higher in shares.
Traders should look to take profits in the low $120 range should it hit in the coming days, as shares may start to hit resistance in the mid-$120 level or above.
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.