Terex Options (TEX): Unusual Trading Activity
Options in heavy equipment maker Terex (TEX) started lighting up our tracking system Tuesday afternoon. And the higher than normal activity is continuing today.
What’s going on?
Terex has successfully bounced off of the bottom of its range, and at least one investor is looking for a rally to ensue. In fact, options activity in TEX over the last few weeks has been about 4 times more than average.
Terex rose almost 1% to $18.60 on Tuesday, and it’s up another 1% this morning.
Even though TEX doesn’t report earnings for a few weeks, option traders are starting to position themselves early. It looks like they’re trying to take advantage of lower than usual volatility in this name.
You see, the lower the volatility, the lower the cost of the options. As a result, large option traders can pick up big blocks at cheap prices.
And one option trader clearly wants to take advantage of the situation.
Just before the close on Tuesday, our radar picked up a block trade of 3,100 contracts of the TEX August $19 call options. They traded at an average price of a mere $1.30 a piece.
The trade is clearly a bullish call on TEX.
Let’s not forget that straight call buying with no other positions is a speculative play with unlimited upside potential. Of course, the shares must move higher for the trade to turn a profit.
But with TEX already closing in on the strike price, this trade could definitely wind up paying off in a big way.
So, why make this trade right now?
I’ll let you know exactly why in just a moment… but first, a few words about this fascinating company.
If you don’t already know, Terex manufactures a wide variety of heavy construction and materials processing equipment for customers all over the world.
The company’s strongest focus is on equipment such as cranes, aerial work platforms, and rock crushers. But TEX also produces a line of compact construction equipment, which includes track loaders, backhoes, and mini-excavators.
While TEX is based in the US, they sell two-thirds of their equipment overseas.
Now, what is this trader thinking, especially with all the overseas turmoil?
Here’s what he likely sees in TEX…
Outside of its construction segment, Terex sells its products directly to customers without the use of dealers. As a result, they don’t have to bear the cost of an extensive dealership retail network like that of Caterpillar (CAT).
What’s more, the company’s aiming to utilize these relationships to promote sales of their compact construction products into this business line as well.
In addition, with building starting to pick up in emerging markets, TEX has improved its cash flow. So this now provides Terex with some financial flexibility to reduce leverage on its balance sheet.
Bottom line… TEX has a lot going for them. And I believe this call position is a very smart play.
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Safe Trading,
Marcus Haber
Category: Unusual Options Trading Activity
