Look for the stock of Ares Capital Corporation (ARCC) to rise in the future.
INSIDER BUYING
The director of the company Steve Bartlett invested in 100 shares at a cost of $17.50 back on May 29. He has followed this trend for the past six months each time buying 100 shares on three separate occasions. The stock is currently trading below this mark at around $17 and is something that investors are looking to purchase, especially if they can get in below where the director of the company has.
As a director of the company it is thought that Bartlett would have a unique view of Ares Capital so this insight is looked at as positive. Because Bartlett is participating in insider buying he might think that the company has some exciting things to look forward to, or it is undervalued.
RECENT PRICE ACTION
The current high price of the stock within a 52-week range was at $18.67 with the low at $15.15. Last Wednesday the shares of the stock were being oversold as they were traded as low as $16.50 per share.
DIVIDENDS AHEAD
With the quarterly dividend out on June 28, at an expected $0.38 it is thought that the shares of the ARCC stock will be trading 2.25% lower. For Ares Capital this looks to represent a $1.52 dividend when looking at the company on an annual basis and represents a yield of 9.23%.
Dividends are not always something that can be seen as predictable but when looking at the history of Ares Capital, they have had strong dividend results in the past so it is reasonable to think that this would continue into the future.
UNUSUAL OPTION ACTIVITY
We define unusual option activity as large block trades that represent a large percentage of daily option volume. The block trade is considered “unusual” if the option volume is above the average daily volume over the past 22 days. At KeeneOnTheMarket.com we scan and analyze order flow from all of the major options exchanges in order to identify any unusual option activity.
Analyzing unusual order flow gives traders a window into what the positions that large institutional players have. The majority of unusual option activity can be traced back to hedge funds, mutual funds, and other large institutions. Knowing where these institutions are placing their bets can be hugely advantageous for any trader. These institutions have informational and technological advantages that the average trader doesn’t have, and the amount of time and analysis that goes into every one of their trades is substantial.
Order flow can however at times be deceiving. One might logically thing that a large block buyer of calls is bullish on the underlying. This is not always the case. Remember that a large number of participants in the equity options market are hedgers. Long calls are a hedge against short stock, and long puts are a hedge against long stock.
THE “INSTITUTIONAL TRADE”
A trader sold 1500 ARCC July 17 Puts for $.30
Their Risk: $1670 per 1 lot
Their Reward: $30 per 1 lot
Breakeven: $16.70
Cash Received: $45,000
MY TRADE
I bought the ARCC Sep 17 Calls for $.55
Risk: $55 per 1 lot
Reward: Unlimited
Breakeven: $17.55
GREEKS OF THIS TRADE
Delta: Long
Gamma: Long
Theta: Short
Vega: Long
