With society gradually returning toward the “old” normal combined with energy supply concerns, the hydrocarbon sector has been on a solid run. However, it seems that options traders really love Suncor Energy (SU), as Barchart contributor Will Ashworth pointed out earlier this month. And this love continues to burn hot, with SU stock gaining a bit over 5% in the trailing week.
So, what’s going on? There are several factors at play.
Fundamentally, as CNN Business pointed out on Aug. 4, energy stocks have been making a comeback after lagging earlier this year. Interestingly, this underperformance came amid OPEC+ producers announcing output cuts in an effort to lift crude oil prices. However, the sector finally started to respond. As well, in July, Saudi Arabia slashed its output by one million barrels per day, likely accelerating the comeback.
In addition, social circumstances are rapidly shifting toward full normalization, which also includes developments in the workplace. Essentially, employers are recalling their employees back to the office, which has significant implications for traffic levels, which would then fuel demand for integrated oil companies like Suncor. Notably, vehicle miles traveled have been steadily increasing.
That’s well and all but the oddity of course is that SU stock presents a troubled case among energy players. Most glaringly, in the company’s second quarter, net income declined 53% to 1.88 billion CAD from 4 billion CAD in the same quarter last year. Also, revenue came in at 7.94 billion CAD, missing the consensus target of 8.58 billion CAD.
Nevertheless, SU stock continues to attract positive attention recently. You can thank the institutional traders.
Unusual Options Activity is Unusual Indeed for SU Stock
Following the close of the Aug. 30 session, SU stock represented one of the top highlights in Barchart’s screener for unusual stock options volume. Specifically, total volume reached 268,430 contracts against an open interest reading of 374,107. Further, the delta between the Wednesday session volume and the trailing one-month average metric came out to 1,043.33%.
Looking at the transactional breakdown, call volume hit 266,076 contracts while put volume only came out to 2,354. This pairing yielded a put/call volume ratio of 0.01, which natively and without any other context implies a strongly bullish profile. Also, the put/call open interest ratio sits at 0.27, which again under an isolated framework suggests longer-term optimism.
Still, it’s difficult to just look at the headline print and extract an all-encompassing insight. Instead, to receive greater context, it’s useful to consider what the real smart money – the institutional players – may be doing. With Fintel’s options flow screener, investors can filter for big block options trades likely made by institutions.
Here, we find that the most recent trade among the institutions involves $32 calls with an expiration date of Sept. 15, 2023. Per Fintel’s screener, the activity involved bought calls, ultimately sending volume to 19,235 contracts. Looking at Barchart’s radar for the latest unusual options activity for SU stock, the volume of said contract hit 21,245.
In case you’re wondering, I can tell I’m looking at the same contract because of the open interest of 2,308 contracts. It’s the same between Barchart and Fintel. Marrying the two datapoints together, we come away with the conclusion that of the unusual options activity for the $32 calls, 90.54% of the demand can be attributed to institutional traders.
Looking at the non-expired contracts in totality, both bullish and bearish activity is evident. However, there are noticeably more optimistically oriented transactions among the major investors then there are countervailing positions. For those that want to wager on SU stock, you’d have the confidence knowing that the alpha dogs have your back.
Ignore the Noise and Buy Suncor (if You’re a Speculator)
Granted, the condition of the consumer economy places some dark clouds over SU stock. For instance, Americans’ credit card debt exceeded the $1 trillion mark, a dubious record. Primarily, this condition implies a battening down of the hatches, which might not help the hydrocarbon space. Still, if you’re a speculator, you may want to consider joining the party and buy SU stock.
Mostly, I say this because the aforementioned workplace transition back to standard norms may spark fear. Yes, angry workers have put up strong resistance. However, when push comes to shove, employers almost always have the power because they sign the paychecks.
Case in point is insurer Farmers Group. In June of this year, the company’s new CEO reversed the prior administration’s remote-work policy, requiring employees to be in the office three days a week. Naturally, the pivot caused an uproar. However, just recently, Farmers announced that it would lay off 11% of its workforce, translating to about 2,400 employees.
How much do you want to bet that there are at least some folks on Farmers’ payroll that wished they would have kept silent instead of popping off? As well, when other companies issue return-to-work mandates, affected workers may have gotten the hint by that point.
In other words, it’s a good time to be in the oil business. If you can accept the risk, SU stock is a cynical buy.
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