Shares of utility firm The AES Corporation (AES) have been trending down over the past year. One trader sees a potential rebound in the coming months.
That’s based on the May $24 calls. With 94 days until expiration, 18,334 contracts traded hands, a 176-fold jump in volume compared to the prior open interest of 104. The buyer of the calls paid $0.93 to make the trade.
The utility’s shares currently go for just under $22.50, so shares would need to rise about 7 percent for the option to move in-the-money. The $24 strike price is well off the company’s 52-week high of just over $29 per share.
Overall, shares are down 18 percent over the past year.
Action to take: With shares now going for 13 times forward earnings, and with revenue up over 19 percent in the past year, the utility does look like it could rebound in the coming months. Investors could buy shares and pick up a 2.75 percent dividend right now, which was also recently raised.
For traders, the option is an interesting play, mostly because of the large interest for a stock in a sector that tends to have low volatility. However, utilities tend to perform well when investors get defensive, so the current slide could end soon, making the May calls an attractive play for a move higher from here.
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.