Shares of specialty industrial machinery company
Colfax Corporation (CFX) have been trending higher in the past year, although the share appreciation has slowed in recent months. One trader sees the possibility of a drop in the months ahead.
That’s based on the December $40 puts. 5,000 contracts traded hands, a 48-fold rise in volume from the prior open interest of 105. The trade has 91 days until expiration. The buyer of the put paid $0.85 to make the trade.
A strike price of $40 is about 20 percent below the current shares price near $48.
Shares have performed about in-line with the stock market last year. Revenues are up nearly 60 percent at the company in the past year, although profitability has been lackluster, with shares trading at 60 times earnings and a profit margin under 3 percent.
Action to take: Shares look a little pricey right now for buyers. And shares don’t pay a dividend, so owners won’t get paid to wait for further upside in shares.
The put options look like an attractive trade, given the company’s weak overall fundamentals and the possibility of a drop in the coming months as the stock market takes a breather. These options are inexpensive, and have plenty of time to provide mid-double-digit profits.
Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any of the companies mentioned in this article.
