Weyerhaeuser Options (WY): Unusual Trading Activity

| August 14, 2012 | 0 Comments

WY OptionsOptions in Weyerhaeuser (WY) – one of the world’s largest forest product companies – showed enormous activity before the close yesterday.

Since WY reported earnings last quarter, the stock’s been in favor with investors.

Weyerhaeuser’s massive wood products business, which makes lumber, panel, and engineered wood products, rode the wave of improved market conditions and efficiency initiatives to its best quarter in years.

Sales increased 22% sequentially to $796 million as volumes and prices improved across all categories.

And lately, Weyerhaeuser has risen with its recent improvements in the housing market.  As a result, one trader apparently believes that the wood-products company has still more room to run.

Yesterday afternoon our complex tracking system detected 2,200 call contracts exchange hands in a single block.

More specifically, one option trader came in right before the close and purchased 2,200 WY September call $25 strike options in a strong buying pattern.  He paid an average price of $0.20 for a total investment of $44,000.

We know this was a strong buy because open interest in the strike price was only 864 at the start of the session.  There’s no question this trader believes WY will trend higher over the next several weeks.

Don’t forget… buying call options outright is a strategy used when a trader feels a stock is going to rise in value.  And it gives a trader unlimited upside potential.

So, is WY worth the risk?

As some of you may know, Weyerhaeuser ranks among the world’s largest forest product companies. They operate four primary business segments… timberlands, wood products, cellulose fibers, and real estate.

What’s interesting is that Weyerhaeuser is structured as a REIT. 

As a result, the company isn’t required to pay federal income taxes on earnings generated by timber harvest activities.  Only earnings from its wood products, cellulose fibers, and real estate segments are subject to federal income tax.

And for some investors that’s an added bonus.

WY also has a few other good things going for it.

The company’s Pacific Northwest timberlands are immensely productive. The region is well-positioned to benefit from any shortfall in Canadian log supplies (a consequence of the mountain pine beetle’s appetite for British Columbia pines) as well as rising Asian wood demand.

In addition, debt reduction efforts facilitated by asset sales have improved Weyerhaeuser’s financial strength.  The company is now in better position to weather long troughs in the housing cycle.  And with the continued uncertainty in the housing market, this definitely gives WY a competitive edge.

Finally, the 2010 REIT conversion will make Weyerhaeuser a much more tax-efficient entity going forward.

Bottom line…

Let’s not forget one of the keys I’ve noticed in my many years of trading options.  Even with lower profile names like WY, option traders are usually right more often than they’re wrong!

We’ll see!

For more detailed information on unusual options activity and how you can profit from it, be sure to sign-up for our daily newsletter, Options Trading Research.  It’s always 100% free and packed full of option trading ideas you can use immediately in your own portfolio.  Click here to subscribe for free.

Safe Trading,

Marcus Haber

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Category: Unusual Options Trading Activity

About the Author ()

Marcus Haber is the co-editor of Options Trading Research and boasts well over a decade of real-life options experience. Learning from some of the biggest names in the business, Marcus has served as an Options Strategist for a number of firms and was also appointed to the Options Advsiory Board with Pershing, a branch of the Bank of New York.