This oil services stock had a tremendous run. How to trade its options
TechnipFMC is a leading technology provider to the energy industry, specializing in projects, systems, and services for oil and gas production. Domiciled in Newcastle Upon Tyne, Great Britain, but operating out of Houston, the company has two primary segments: subsea and surface technologies. As the names imply, the subsea segment focuses on the design, engineering, procurement, manufacturing, fabrication, installation, life-of-field services for subsea production systems, field infrastructure and pipeline systems used in offshore oil and natural gas production and transportation. The surface technologies segment designs, manufactures and services equipment for land and shallow-water exploration and production, including wellheads and intervention systems. At present, the company has a substantial subsea contract backlog of just under $16 billion, providing strong revenue visibility through 2026 and beyond, assuming oil prices remain stable. Presumably, if oil prices were to move sharply lower, there’s a risk that some of that backlog could evaporate if customers elected to delay or cancel. Management has guided to subsea revenue of $9.1 billion to $9.5 billion in 2026, while already strong trailing 12-month EBITDA margins of 18% are expected to expand slightly in fiscal year 2026. They also initiated a $2 billion stock buyback program in October, which — combined with $300 million from the prior program — represents roughly 9.2% of TechnipFMC’s current market capitalization. Other than the risks associated with the oil and gas business generally — it is cyclical after all — arguably the biggest challenge for would-be buyers is the stock’s staggering performance since its mid-2022 lows, when the stock was just $5.62 per share. It’s up a staggering 1,000% in less than four years. Although the company’s operating performance is strong, it has not grown anywhere near as quickly as its share price over that period. The fundamentals remain strong, although at 22x FY2026 adjusted EPS estimates of ~2.81/share, the company is reasonably valued rather than undervalued. The trade A possible alternative to purchasing the stock outright is a call-spread risk-reversal, a position that may obligate an investor to purchase the shares at a discount to the current stock price while offering potential upside if the shares continue to rally through earnings, which the company announces next week. Bear in mind that the purpose of the structure is for the short options to offset the decay of the long option. One should be prepared to cover and adjust the nearer-dated strikes as the stock moves and time passes, and as options premiums fall, as they are likely to after the quarterly earnings release. If the stock moves sharply higher or lower, look to close and roll the short option that becomes farther out of the money when the remaining premium becomes small. Although the amount of time to expiration can be a consideration as a part of the calculus on whether or not to close a short option, if once elected to simply close once 80% of the premium has been realized, that is a reasonable rule of thumb. DISCLOSURES: None. All opinions expressed by the CNBC Pro contributors are solely their opinions and do not reflect the opinions of CNBC, or its parent company or affiliates, and may have been previously disseminated by them on television, radio, internet or another medium. THE ABOVE CONTENT IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY . THIS CONTENT IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSTITUTE FINANCIAL, INVESTMENT, TAX OR LEGAL ADVICE OR A RECOMMENDATION TO BUY ANY SECURITY OR OTHER FINANCIAL ASSET. THE CONTENT IS GENERAL IN NATURE AND DOES NOT REFLECT ANY INDIVIDUAL’S UNIQUE PERSONAL CIRCUMSTANCES. THE ABOVE CONTENT MIGHT NOT BE SUITABLE FOR YOUR PARTICULAR CIRCUMSTANCES. BEFORE MAKING ANY FINANCIAL DECISIONS, YOU SHOULD STRONGLY CONSIDER SEEKING ADVICE FROM YOUR OWN FINANCIAL OR INVESTMENT ADVISOR. Click here for the full disclaimer.
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