Despite the seemingly never-ending saga of low oil, one trader placed a big bet this week that one area of the energy market could soon make a major comeback.
Looking at the JPMorgan Alerian MLP ETN, the AMJ, that trader purchased 50,000 of the January 2017 30/40 call spreads for 80 cents each. Since each call option accounts for 100 shares, this is a $4 million bet that the AMJ will rise as high as $40 in less than 12 months. That's a near 90 percent move from where the ETN was trading on Thursday, around $21.
Shares of AMJ — whose top holdings include an array of energy names like Enterprise Products, Magellan Midstream, Williams Partners, Sunoco and ONEOK—have fallen 26 percent in 2016 and are sitting near five-year lows. Meanwhile, crude oil prices fell more than 3 percent to a 13-year low on Thursday.
"Another interesting thing about AMJ that is flashing a signal is the current yield, which is over 10 percent," added the Optimize Advisors president and chief strategist. "Usually a very high dividend is a warning sign that pending cuts are likely."
The collapse in oil has Wall Street worried that many energy companies would soon cut their hefty paying dividend yield. ConocoPhillips announced a dividend cut earlier this month. Shares have since tumbled nearly 20 percent.