Oil and gas midstream giant Williams Companies (WMB) is up 70% over the past year, performing exceptionally well even as energy prices have been lackluster. One trader sees a pullback in the weeks ahead.
That’s based on the March $50 puts. With 52 days until expiration, 9,577 contracts traded compared to a prior open interest of 162, for a 59-fold rise in volume on the trade. The buyer of the puts paid $1.06 to make the bearish bet.
Williams recently traded for about $54, so the stock would need to decline by $4, or about 7.4%, for the option to move in-the-money. Shares recently hit a 52-week high of $61.46 before pulling back.
Williams operates one of the largest natural gas processing and pipeline transmission facilities, and has benefitted from higher prices amid recent cold snaps. With the weather warming up for now, activity in the natural gas space may slow.
Action to take: Shares got overbought and are now coming back in line with their longer-term returns. Interest investors should consider buying if shares get down to the $50 range as a reasonable buy. At current prices, Williams pays a 3.2% dividend.
For traders, the March $50 puts are well priced for a potential downturn in interest in natural gas over the coming weeks. Traders should look to take quick profits in case the weather surprises with another big winter storm.
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 company mentioned in this article.