Investing In CMS Energy Or Not

Investors in CMS Energy Corp (: CMS) have seen new options prior to the February 2020 expiration. Recently, investors have either added to or reduced their stakes in the company. According to reports and data available, Metropolitan Life Insurance Co NY lifted its position in shares of CMS Energy by 0.4% during the third quarter and currently owns 42,521 CMS shares. Millennium Management LLC lifted its position in shares of CMS Energy by 37.3% during the third quarter and now owns 2,202,394 CMS shares. 

CMS Energy (NYSE: CMS), is an energy company that is involved in utility operations and based in  Michigan. Its principal business is consumers energy, a public utility that provides electricity and natural gas to more than 6 million of Michigan's 10 million residents.  Its non-utility businesses are focused primarily on domestic independent power production. CMS Energy was formed in 1987 as a holding company with its principal subsidiaries as Consumers Energy and CMS Enterprises. On October 23, 1987, CMS Energy became a publicly owned company and was listed at the New York Stock Exchange.

Recently, CMS saw a significant drop in short interest in December. The short interest as of December 13 totalled 6,100,000 shares, representing a drop of 7.3% from the November 28 total of 6,580,000 shares. Based on an average daily volume of 1,830,000 shares, the days-to-cover ratio is presently 3.3 days. The drop in short interest is also coming after a  director, Jon E. Barfield sold 8,390 shares of CMS Energy stock in a transaction on dated November 14th; at an average price of $60.75, for a total transaction of $509,692.50. The transaction was disclosed in a document filed with the Securities & Exchange Commission

A report by Stock Options Channel published on Nasdaq, have identified one put and one call contract of particular interest.

According to Stock Options, "The put contract at the $60.00 strike price has a current bid of 15 cents. If an investor was to sell-to-open that put contract, they are committing to purchase the stock at $60.00, but will also collect the premium, putting the cost basis of the shares at $59.85 (before broker commissions). To an investor already interested in purchasing shares of CMS, that could represent an attractive alternative to paying $62.94 per share currently. Since the $60.00 strike represents an approximate 5% discount to the current trading price of the stock, there is also the possibility that the put contract would expire worthlessly. The current data suggest the current odds of that happening are 78%. Should the contract expire worthless, the premium would represent a 0.25% return on the cash commitment, or 1.52% annualized. The call contract at the $65.00 strike price has a current bid of 30 cents. If an investor was to purchase shares of CMS stock at the current price level of $62.94 per share, and then sell-to-open that call contract as a "covered call," they are committing to sell the stock at $65.00. Considering the call seller will also collect the premium, that would drive a total return (excluding dividends, if any) of 3.75% if the stock gets called away at the February 2020 expiration (before broker commissions). Of course, a lot of upside could potentially be left on the table if CMS shares really soar, which is why looking at the trailing twelve months trading history for CMS Energy Corp, as well as studying the business fundamentals becomes important."

Shares of CMS traded down $0.24 on Monday, Dec. 30, hitting $62.30. 24,572 shares of the company’s stock were exchanged, compared to its average volume of 1,429,353. CMS Energy has a 12 month low of $47.97 and a 12 month high of $65.31. The stock has a market capitalization of $17.67 billion, a price-to-earnings ratio of 26.73, a price-to-earnings-growth ratio of 3.91 and a beta of 0.05.

Currently, CMS trades at $62.84 per share.