Options trader bets nearly $500,000 on a big turnaround for one energy name

It’s no secret how hard integrated oil names have been hit this year due to the global economic consequences of the coronavirus pandemic, and Occidental Petroleum has been among the worst hit of all the companies in the space. 

The stock has lost more than 60% of its value since the beginning of the year, leading Warren Buffett‘s Berkshire Hathaway to liquidate its stake in the oil giant. 

However, Buffett’s loss may be another trader’s gain, if their bet on a huge turnaround in the stock’s fortunes pays off.

“About 8,000 by 12,000 of the [November] 16 and 20-strike calls traded respectively for [a net price of] about 60 cents per contract,” Michael Khouw, chief investment officer at Optimize Advisors, said Monday on “Fast Money.”

In total, that’s a bet of about $475,000 in premium, and it might take quite a bit of work for the stock to ratchet up to where this trader needs it to be. The spread breaks even around $16.60 on the underlying stock, or about 18% higher than the current price, and the profits max out at just under 50% higher than where the stock is right now.

“I think when we look at this situation, obviously the stock’s in dire trouble, it’s been behaving very badly. It’s possible that buyers of calls here are speculating now that some of that selling pressure has been lifted because Buffett has exited his position, and there may be some upside,” said Khouw. 

Occidental was up 1% in Tuesday’s session. 


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