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Unusual Options Activity: AbbVie (ABBV)

Posted: 01 Jul 2019 03:00 AM PDT

Big trade bets shares will rally in July.

Shares of AbbVie (ABBV) dropped nearly 15 percent on news that it was planning to acquire Botox maker Allergan. One trader is betting that the move was overdone.

On Friday, over 3,200 contracts traded on the August 2, 2019 $80 call option. With 35 days left to expire and AbbVie prices just under $72, the option is a bet on an 11 percent rally in shares in the month of July.

That kind of percentage move in a big-name company may seem like a stretch, but given how shares of AbbVie dropped heavily on the merger news, this option could easily make a big profit for traders. The option last traded around $0.33, or $33 per contract, making for a cheap bet on a bounce in shares.

Action to take: For a short-term bet, following this option is inexpensive with low downside and looks like a great trade here.

Given how out of favor the biotech and pharma sector is right now, however, investors could get a huge dividend yield and get paid to wait by buying shares, provided they take a longer-term outlook.

As an added bonus, the company's prospects will only improve with the Allergan merger. If the merger doesn't go through, which is always a possibility given the regulatory approval required, shares should quickly move higher to their pre-announcement price around $80.

Insider Activity: Altus Midstream Company (ALTM)

Posted: 01 Jul 2019 03:00 AM PDT

Company CEO makes third buy in the past five weeks.

Insiders continue to be buyers in the energy sector, even after oil prices have started moving higher.

The latest example? Natural gas pipeline company Altus Midstream Company (ALTM). On Thursday, CEO Clay Bretches picked up 15,000 shares of the company, paying nearly $55,000.

It also increased his total stake by over 37 percent, a huge additional buy in. This follows up on buys of 20,000 shares on June 14th, and 20,000 shares back on May 21st.

Altus is in the natural gas space, with a focus on gathering, processing and transmitting natural gas assets from the Permian Basin in West Texas.

The company operates 111 miles of natural gas gathering pipelines, 52 miles of residual gas pipelines, and 26 miles of natural gas liquid pipelines. It owns a number of gas processing facilities, as well as storage and transfer tanks.

Action to take: Seasonally, the summer is a weak time for natural gas. Unusually warm weather could lead to an increase in demand to provide cooling, but typically winter is the season when prices move higher.

Counter-intuitively, that makes the weak summer months one of the best times to buy shares.

Under $4 per share, and well off a 52-week high of $10, this looks like an inexpensive bet on natural gas prices eventually heading higher.

Banks Surge on Fed Approval of Capital Plans

Posted: 01 Jul 2019 03:00 AM PDT

 

Big banks authorized to increase dividends and buybacks.

The Federal Reserve approved capital plans for major banks on Thursday. Since the financial crisis, the 18 largest banks doing business in the United States have to periodically send these plans on to the Fed.

As part of these plans, all banks involved now have approval to increase dividends and share buybacks. For example, Bank of America (BAC) approved a 20 percent increase in its quarterly dividend and approved a buyback of up to $30.9 billion in shares.

The goal behind running the plans by the Fed is to ensure the banks have sufficient capital to deal with a crisis, and also maintain reasonable amounts of leverage. Smaller banks do not have to meet such stringent requirements.

Action to take: While an increase in dividends and buybacks should be great for share prices, the financial sector is still looking at the prospect of lower interest rates in the near future. Lower interest rates can impact profitability, as banks will have a lower spread between the rates they charge to lend money and the rates they have to pay to depositors.

While the larger banks also have additional investment banking revenues, those could drop precipitously in a crisis. Investors interested in the banking sector can find better values and higher dividend yields in smaller banks—which in turn could get a hefty premium if acquired by a bigger bank.

Chicago PMI Drops, Shows Economy Contracting

Posted: 01 Jul 2019 03:00 AM PDT

Slowdown blamed on tariff uncertainty.

The Chicago Purchasing Manager’s Index decreased by 4.5 points to 49.7 in June. That's in contrast to a read of 54.2 in May. The index is structured to show growth over 50, and a decline under 50. This marks the first sub-50 reading since January 2017.

Businesses surveyed also showed a 13 percent drop in confidence in the economy going forward, with the average dropping to 52.2, just a hair above the 50 level that also indicates growth.

This is yet another piece of economic data that indicates a potential slowdown in the economy is underway. Even if one isn't, the drop in sentiment shows how factors such as tariffs and trade wars are impacting the economy.

A deeper dive into the PMI data also showed that companies continue to accumulate inventory, possibly to avoid higher tariff rates on foreign goods in the future. A whopping 80 percent of firms surveyed said they were negatively impacted by tariffs, which raised the prices on their goods and led to a pullback in orders.

In terms of good news, factory prices picked up for the second consecutive month, and there were some reports of new hires, albeit at a slow pace in line with record-low unemployment numbers right now.
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