WMB, NAVB Options – Unusual Trading Activity – January 18, 2013
This week we’re taking a look at unusual options trading activity in Williams Companies (WMB) and Navidea Biopharmaceuticals (NAVB).
As many of you know, unusual options volume can be a valuable indicator as to what traders are thinking, and more importantly, where these stocks are heading in the short-term.
This is something professional options traders pay a lot of attention to, and for good reason…
Unusual options activity can “tip off” big moves in a stock, either up or down.
So let’s take a look at some ‘interesting’ activity that caught our eye this week:
Williams Companies Options (WMB)
Bullish option activity on natural gas infrastructure operator Williams Companies soared on Thursday. One trader sees WMB reaching $45 by next year.
WMB is currently trading for $34.00 per share. The stock is up 28% from the 52-week low of $26.71. And it’s currently 8% below the 52-week high of $37.19.
A trader put on a sizeable spread trade where he bought 65,000 of the January 2014 $40 calls for 86 cents and sold an equal amount of the January 2014 $45 calls for 16 cents.
The trade cost him 70 cents per spread and he bought 65,000 of them. That’s a $4.55 million bet on significant upside in WMB!
In order for the trader to breakeven when the options expire next January, WMB needs to rise nearly 23% to $41.70. The trader’s profit maxes out if WMB is at or above $45 at expiration. If WMB reaches this price, the trader stands to make a whopping 614%!
Here’s the thing…
WMB has pipelines stretching from deepwater Gulf of Mexico to the Canadian oil sands. These pipelines and storage facilities are cash generating machines.
They’re using the cash flow to grow the business and the dividend. WMB just raised their quarterly dividend 4.2% to 33.875 cents per share. That’s $1.35 annually and they plan on increasing the dividend to $1.44 in 2013 and $1.75 in 2014.
At a current price of $34.00, WMB’s dividend yield is 3.9%. And if they increase their dividend as expected, the dividend yield will skyrocket to 5.1% by 2014.
Put simply, that’s an income investor’s dream.
Is this a good trade?
It’s obviously a speculative trade. Any time you need the stock to soar by 23% to breakeven and 32% to max out your profits you’re speculating. But the company’s plan to grow the dividend by 20% per year certainly justifies a similar rise in the stock price.
As long as WMB follows through on their plan to hike the dividend, this trader could reap a massive windfall next year.
Navidea Biopharmaceuticals Options (NAVB)
Call volume on Navidea Biopharmaceuticals (NAVB) jumped off the charts this morning. But this isn’t your typical bullish call buying in a hot biotech stock…
NAVB is currently trading for $2.97. The shares are up 38% since reaching a 52-week low of $2.14 in November. But the shares are still 38% below the 52-week high of $4.77.
Total daily option volume on NAVB has averaged just 374 options over the last month. So a single block of 4,879 July $3 calls was certainly an unusual spike in volume.
But here’s the thing… these options traded at 60 cents. That’s below the listed bid price at the time. So this isn’t bullish call buying activity. This trader was selling calls.
The likelihood of a trader outright selling at the money calls is slim and none. These calls were likely sold against a long stock position to create a covered call.
By selling the calls, the trader collects $292,740. If the stock stays below $3 until July, the options will expire worthless. He’ll keep the option premium and still own the stock.
If NAVB is above $3, his shares of stock will be called away at $3. If the stock is below $3.60, he’ll be better off than if had waited until July and simply sold the shares. However, he’s giving up any upside in the stock beyond $3.60.
And I don’t blame him…
NAVB had a big run-up ahead of a FDA approval for its cancer imaging agent Lymphoseek. Not surprisingly, the stock tumbled lower when the FDA rejected it.
What’s more, it’s unclear how long it will take NAVB to address the FDA’s concerns.
The trader obviously expects NAVB to clear up the issues at some point or they would have just sold the stock. Selling a covered call is a good way for the trader to generate some sort of return on his NAVB stock holding while they wait to get the issues resolved.
One thing’s for sure, the trader isn’t expecting the FDA to reverse their decision in the next six months. If they do get the FDA issues resolved and gain an approval, the trader will likely be kicking himself for capping his upside at $3.60.
More Options Ideas…
That wraps up this week’s unusual options trading and volume…
Keep in mind, there’s a lot more unusual options activity going on than what we discuss here.
We just try to bring you what we feel are the most significant ones– and the ones you might actually be able to make some money on!
So keep an eye on your email inbox… we have a lot more options trading ideas coming your way!
Safe Trading,
Marcus Haber
Category: Unusual Options Trading Activity
