Oil Stock Plummets After Announcing Billion-Dollar Merger

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Cabot Oil & Gas will buy Cimarex Energy (XEC) in a $7.35 billion deal

There’s big news out of the oil and energy sector this morning. The shares of Cabot Oil & Gas Corporation (NYSE:COG) are down 8.3% at $16.32 this morning one of the worst stocks on the New York Stock Exchange (NYSE) this morning. This comes after the company announced it will buy Cimarex Energy (XEC) in an all-stock deal valued at $7.35 billion. The merger, called an “unexpected combo” by Credit Suisse, is expected to close in the fourth quarter and will form an enterprise worth roughly $17 billion that’s expected to save the companies $100 million in annual general and administrative costs, as oil and gas demand recovers from pandemic lows.

The past year has been a roller-coaster for Cabot Oil & Gas stock. The $16 level has served as a floor, especially in the fourth quarter of 2020 and in April 2021 . Breakouts this year, on the other hand, have been thwarted by the $19.50 level. Long term, COG sports a 9.4% year-to-date advantage. 

The options pits show that calls are quite popular. This is per Cabot Oil & Gas stock’s 50-day call/put volume ratio of 7.93 at the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), which sits  in the 86th percentile of its annual range, indicating long calls are being picked up at a quicker-than-usual clip. 

Today’s options activity tells a different story. So far, 1,222 puts have crossed the tape, eight times the intraday average and nearly twice the number of calls traded. Most popular is the 6/11 16.50-strike put, followed by the 6/4 17-strike put, with new positions currently being opened at the latter.

What’s more, COG premiums are a bargain right now. The equity’s Schaeffer’s Volatility Index (SVI) of 32% stands higher than only 1% of all other readings from the past year. In other words, options players are pricing in lower-than-usual volatility expectations at the moment.