Trade Idea: Buy Short-Term Options On Energy Transfer Partners (ETP)

A distinct lack of negativity toward ETP among analysts and investors could also contribute to short-term downside, as expectations seem remarkably high toward this long-term underperformer (down 29% over the past two years). For example, 80% of analysts call the stock a Buy or Strong Buy, leaving plenty of room for future downgrades as the price action continues to disappoint.

Elsewhere, many short sellers have already cashed out of their winning bets on ETP, with short interest down 43.5% over the past two reporting periods. That means there’s not much left in the way of short-covering support left to tap. Short interest now accounts for less than 1% of ETP’s float, resulting in an extremely slim short interest ratio of just 1.7 days to cover.

Fortunately, it’s an ideal time to buy short-term ETP options. The equity’s Schaeffer's Volatility Index (SVI) -- a measure of front-month, near-the-money implied volatility levels -- checks in at 27%, which registers in the low 9th percentile of its annual range. This means front-month options on ETP have rarely been cheaper over the last 52 weeks, from a volatility standpoint -- so speculators anticipating a quick move lower can reap the maximum possible leverage from their put purchases.

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