Call Traders Embrace Energy Stock After Billion-Dollar Deal

Dominion is also dropping its $8 billion Atlantic Coast pipeline deal with Duke Energy

Laura McCandless

Deputy Editor

Jul 6, 2020 at 12:18 PM

Dominion Energy Inc (NYSE:D) is down 7.1% at $76.85 at last check, amid news that the company selling gas assets to Warren Buffets' Berkshire Hathaway (BRK.A) for $4 billion. The Berkshire unit is also taking $5.7 billion of D's debt, giving the transaction a $9.7 billion enterprise value. The real drive behind today's fall, however, is Dominion dropping its $8 billion Atlantic Coast pipeline deal with Duke Energy (DUK), due to high costs and legal delays.

Set to snap a four-day win streak if today's losses hold, the stock is looking to close below the $76 region for the first time since the start of May. Currently, Dominion stock is down 7.7% year-to-date. Today's headlines also has analysts chiming in, with price-target cuts from Credit Suisse and Guggenhim to $75 and $85, respectively. Coming into today, nine of the 12 covering firms sport a tepid "hold" rating on the equity.

Today's news also has options volume through the roof, with 28,000 calls across the tape so far -- 73 times what's typically seen, and 5,953 puts. Most popular by far is the July 90 call, followed by the 87.50 call in the same session.

Albeit amid light absolute volume, longer-term, data at the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) show's D sporting a 50-day call/put volume ratio of 2.72, which ranks in the 84th annual percentile. This suggests a healthier-than-usual appetite for calls over puts of late. Echoing this, the security's Schaeffer's put/call open interest ratio (SOIR) of 0.39 sits in just the 7th percentile of its annual range, suggesting short-term option players have rarely been more call-heavy during the past 12 months.

Now looks like a good time to weigh in on these options, too, per the stock's Schaeffer's Volatility Index (SVI) of 23%, which stands higher than just 13% of all other readings in the past year. This implies that options players are pricing in relatively low volatility expectations at the moment.

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