Shares of oil and gas explorer Suncor Energy (SU) are up about 35 percent in the past year. One trader sees a short-term drop ahead for the stock.
That’s based on the November $25 puts. With 29 days until expiration, 4,271 contracts traded compared to a prior open interest of 114, for a 37-fold rise in volume on the trade. The buyer of the puts paid $0.32 to bet on a decline in shares.
The stock recently traded for about $31, so shares would need to drop over 20 percent for the option to move in-the-money in about a month. Shares hit a 52-week low just over $22 in late September, so such a big swing in price is in the realm of possibility.
Action to take: A swing lower would be good for potential buyers. The stock is already inexpensive at under 7 times earnings today. Plus, shares yield about 4.5 percent here. On a further drop, with a dividend closer to 5 percent, long-term buyers would likely get great long-term returns.
For traders, shares are well off their 52-week highs and are prone to big swings. Following the move up in the last month, there’s likely some money to be made on a bet lower in the coming weeks.
Look for a quick profit on this trade – and to potentially buy a call option on a drop into the mid-$20 range.
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.