Shares of pharmaceutical and medical supply company Abbott Laboratories (ABT) have lost about 20 percent of their value in the past year. One trader sees a further drop in shares ahead.
That’s based on the November $75 put options. With 79 days until expiration, 10,841 contracts traded compared to a prior open interest of 350, for a 31-fold rise in volume on the trade. The buyer of the puts paid $0.24.
Shares recently traded for $102, so they would need to lose more than a quarter of their value to move in-the-money. The stock is already at a 52-week low, so the move lower would put shares in uncharted territory.
While shares have dropped already in the past year, the company has been posting strong earnings, with a 70 percent jump in the past year and a 10 percent rise in revenue.
Action to take: Shares could drop further in the coming weeks on a decline in the overall market, as interest rates look set to rise further. Investors may want to look to buy in the low $80 range on a drop lower, but be patient until then.
For traders, the November puts are an inexpensive trade that could deliver high returns. However, with less than 3 months to play out and with a 25 percent move in the stock unlikely, traders should look to take quick profits on any further weakness in shares in the coming weeks.
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.