While the investment market is unpredictable, one of the closest signals you can get to an early warning radar is unusual options activity. This indicator can tell you what the smart money is betting on. Recently, an increase in bullish wagers for offshore oil and gas producer Kosmos Energy (NYSE:KOS) has piqued curiosity. Essentially, market professionals see robust upside in KOS stock over the next half-year period.

Such an outlook – while speculative – is also quite rational.

For one thing, the Federal Reserve appears poised to lower interest rates. Such a decision might not be implemented immediately. However, policymakers have hinted that they have witnessed encouraging developments related to inflation and the labor market. Should borrowing costs be reduced, that could spur economic activity. In turn, such activity may bolster upstream entities like Kosmos.

Another factor to consider is geopolitics. At this moment, tensions in the Middle East are soaring, creating the potential for global oil supply disruption. Such disruptions often lift crude oil prices, creating another catalyst for KOS stock.

As per usual, options traders appear to be ahead of the curve.

Unusual Options Activity Puts the Spotlight on Kosmos Energy

Following the conclusion of the July 30 session, KOS stock represented one of the key picks in Barchart’s screener for unusual stock options volume. Specifically, total volume hit 7,371 contracts versus an open interest reading of 58,659. Notably, Tuesday’s volume clocked in at 673.45% above the trailing one-month average.

What’s more telling, call volume stood at 7,369 contracts against put volume of only 2. On paper, that’s incredibly bullish since calls give stakeholders the right (but not the obligation) to acquire the underlying asset at the listed strike price.

A quick look at options flow – which focuses exclusively on big block transactions likely placed by institutional or professional investors – revealed that net trade sentiment on Tuesday stood at $78,800 in favor of the bulls. In total, premiums from options with bullish sentiment landed at $94,000, while premiums from bearish options came in at $15,200 below breakeven.

What’s important to note here is that most of Tuesday’s unusual options activity stemmed from one trade: 6,070 contracts of the 2025 Jan. 17 $7.50 call. With all traders included, the volume for this call option stood at 6,671 contracts.

In other words, both professional and retail traders appear to be betting that by Jan. 17 of next year, KOS stock will rise 37.4% from Tuesday’s close of $5.46. It’s super risky but it’s also not entirely unreasonable.

Keep in mind that in early September, KOS stock traded hands for above $7.50. The price point also represents a long-term resistance level that’s been in place since March 2022. A return to this benchmark would naturally be a target for bullish traders.

Trade of the Day: Take a Long Shot with KOS Stock Calls

Wednesday’s Trade of the Day is one for extreme speculators: Consider acquiring the aforementioned January 17, 2025 $7.50 call. Three factors go into this tempting idea:

• Low expectations: The premium of the January call was unchanged since July 24 at 19 cents, even with the massive volume influx.
• Technical factor: A move by KOS stock to $7.50 would mean a return back to levels last seen about a year ago. Again, it’s not an unreasonable expectation.
• Positive fundamentals: Both monetary policy and geopolitics appear to support the energy industry, and specifically, upstream entities.

Of course, anything can happen in the monetary policy and geopolitical realms. Therefore, strict money management will be a priority for an idea like KOS stock call options.

On the date of publication, Josh Enomoto did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.