Option Traders Think The Bottom is in For Dynegy Inc. (NYSE: DYN)

Dynegy Inc. (NYSE: DYN) hit 52-week lows yesterday. However, the bottom might be in, according to some option players. On an average day, Dynegy sees approximately 500 calls trade, but the call volume was nine times above average, as more than 4,000 calls traded yesterday.

DYN Options Activity

In the afternoon, an option player came in and bought over 1,400 April $7.50 calls on the ask side for $0.23. This was when the stock was trading at $6.79 per share. Now, it’s important to note, at the time, those options had an open interest of 2,304 contracts, and therefore, we’ll have to wait and see at today’s open, if the open interest increases or if this was a closing of a position.

If it is a new position, the option player will need to see the stock rise by at least 11% on the expiration date in order to break even on the trade.

DYN Options April 2017

Source: Yahoo Finance

All in all, over 1,800 options traded on this strike, that expire on April 21, 2017. We also saw a bevy of January 2019 $7.5 calls trade, mostly on the ask side, for around $2.10 per contract. These options were opening positions, trading volume exceeded open interest. Not only did these option players believe that DYN would bounce but they also liked it for the long term.

DYN Options January 2019

Source: Yahoo Finance

Generally speaking, mom and pops are not putting on 1,000 contract option orders, which indicates that someone with a big bankroll believes that the bottom is in on Dynegy. Who knows, maybe they have access to better research or contacts than you and me…giving them the conviction needed to put a trade of that size on.

DYN Shares Fall Due to Potential Lower Prices for Asset Sales

The over 4% drop in the holding company that engages in the production and sale of electric energy, capacity and ancillary services, yesterday, could be attributed to the Millstone bill heading to full state Connecticut House of Representatives and Senate.

The bill potentially allowing Dominion Resources, Inc. (NYSE: D), the owner of Millstone, to access the market would give Dominion and other bidders to offer lower prices. DYN completed its acquisition of ENGIE’s U.S. portfolio last month, and those assets included various plants in Massachusetts, in the ISO-New England market.

In the company’s Q4 2016 conference call, DYN CEO stated, “Over the course of the year additional portfolio changes are likely in order to meet our required market mitigation actions in Southeast New England as well as for other select asset sale opportunities.”

That in mind, if the company does move to sell some of its assets in New England, it could get lower prices for the sales.

What You Need to Know About DYN

  • There was unusual call option activity in DYN yesterday, and some traders think the bottom might be in.
  • The fall in DYN could be attributed to the Millstone bill, which could cause the utility company to fetch lower prices in asset sales.
  • Revenues grew by over 11% in FY2016, year over year.
  • Company reported net loss per share of $9.78 in FY2016, which was primarily due to $759M in higher impairment charges recorded in 2016, and income from a $459M deferred tax valuation allowance release in 2015.
  • DYN had total liabilities of $11B and total equity of $2B for the 2016 fiscal year.
  • The company had a debt-to-equity ratio of 5.40, while the industry average was 3.1, indicating the company has been taking on too much debt.
  • Stock was down over 45% over the past year.

DYN Stock Performance

Source: TradingView

The Bottom Line

The call option activity in Dynegy could be indicating that traders are thinking the bottom is in, after making new 52-week lows yesterday. Over 1,800 calls traded on the DYN $7.50 call strike, expiring in April 21, 2017, and there was an opening position in DYN. The stock’s 4.53% drop may have been due to the Millstone bill news. That said, the company could potentially fetch lower asset sales, only if it decides to sell its New England assets. However, the bill still needs to be heard by the full state Connecticut House of Representatives and Senate. Consequently, this bill may not even affect Dynegy, for now.

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