Pipeline Bulls Turn to Energy Transfer
02/08/17

Pipeline securities started 2017 with a bang as President Trump initiated the loosening of regulation, while nominating industry ally Rick Perry to head the Energy Department. Now traders are looking for a potential breakout by a member of the group.

Energy Transfer Equity had a large bullish trade yesterday, with 33,000 March 20 calls purchased for $0.43. Calls are options to buy a security, allowing investors to pay a premium to leverage rallies should they occur.  If the rally in the security does not occur they lose the cost of the premium paid.

ETE traded around $18.40 when the transaction crossed. A gain of less than 15 percent from that price will more than double the $0.43 outlay, while a 20 percent move to $22 will more than quadruple their money. But if the stock fails to climb or appreciates too slowly, the premium they paid for those options will be lost.

The stock gained in the last hour, closing up 2.75 percent at $19.05. It remains trapped below its longer-term peaks around $20 but has held above its rising 50-day moving average. Some chart watchers may interpret that price action bullishly, hoping for resistance to be broken. It’s been moving higher since President Trump’s election in November.

ETE’s holdings encompass over 71,000 miles of natural-gas and crude-oil pipelines in states like Texas and Louisiana. Its new Rover project will also transport gas from Marcellus shale fields in western Pennsylvania and West Virginia to transport hubs in Michigan.

President Trump issued executive orders last month to accelerate the permitting and manufacture of pipelines. He also allowed construction of two major projects blocked by former President Obama. JP Morgan Chase Alerian ETN (AMJ), which tracks the broader industry, has delivered almost 3 times the return of the broader S&P 500 so far this year.

The volume in those ETE calls made them one of the most active contracts on a single-name equity (as opposed to an ETF) in the entire market on Tuesday. Overall activity was more than quadruple the daily average, with calls outnumbering puts by 29-to-1.