Shares of silica producer U.S. Silica Holdings (SLCA) have been in a strong uptrend, more than doubling since February. One trader sees a continued rally in shares.
That’s based on the January 2023 $10 calls. With 276 days until expiration, 9,183 contracts traded compared to a prior open interest of 124, for a 74-fold increase in volume on the trade. The buyer of the calls paid $11.60 to get in.
Shares recently traded around $20.50, indicating that the calls are about $10.90 in-the-money already, and the buyer is paying about $0.70 in time premium for the trade.
The company’s silica products are primarily used for oil and gas proppants, and other specialty industrial products and services. Thanks to the recent rally in shares, the stock is now up about 72 percent in the past year.
Action to take: Even after the big rally in the past year, shares could further rally following the company’s growing earnings and importance to oil and gas field development. While currently unprofitable, shares could continue rising with the oil boom. At present, shares don’t pay a dividend.
For traders, the January $10 calls are a bit pricey, but being far in-the-money already could still lead to high double or low-triple-digit gains on a further rally in shares. More aggressive traders may want to use a lower strike price, where the potential percentage return is higher over the coming months.
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.