Shares of oil and gas exploration company Ring Energy (REI) have lagged its peers, with just a 30 percent gain in the past year. One trader sees the company narrowing that gap with a move higher.
That’s based on the December $5.50 calls. With 113 days until expiration, 10,126 contracts traded compared to a prior open interest of 225, for a 45-fold surge in volume on the trade. The buyer of the calls paid $0.13 to make the trade.
Shares recently traded close to $3.00. So they would need to rise $2.50, or about 83 percent, for the options to move in-the-money. Shares have a 52-week high of $5.09, just under the strike price of these options.
Action to take: Thanks to soaring energy prices, revenue is up 77 percent in the past year. And the stock trades at 3 times forward earnings expectations, making it look like a bargain relative to other players in energy right now. Investors may like shares for a move higher. The stock doesn’t currently pay a dividend.
For traders, the options are inexpensive, and could potentially double before expiration. It’s a bit unlikely that the option will move in-the-money. But for a short-term bounce in shares, traders can make a big return well before the options expire near the end of the year.
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.