Market News

December 5, 2016  Mon 7:16 AM CT

A large trade in FirstEnergy may indicate that traders believe utilities will continue their recent downtrend.

Our systems show that more than 32,000 April 25 puts in FE were bought for $0.45 to $0.55 on Friday, clearly new positioning because open interest in the strike was only 711 contracts before the session began. Total option volume in the name was 12 times its daily average, and overall puts outnumbered calls by a bearish 32-to-1 ratio.

Long puts lock in the price where a stock can be sold, so they make money if shares decline. Investors use them to hedge long positions or to speculate on a drop. (See our Education section)

The Ohio-based utility rose after reporting strong quarterly numbers on Nov. 4 but fell with the rest of its traditionally defensive sector as stocks rallied, interest rates rose, and the dollar hit multi-year highs. Shares are near the lower end of a range that has been in place for nearly two years, and Friday's puts will see big gains if the stock breaks through that long-term support.

FE fell 1.36 percent to $30.57 on Friday and is down 7 percent in the last month. The company's next quarterly report is estimated for the post-market on Feb. 16.

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