Unusual Options Activity: Altria (MO)

Trader bets on more downside for tobacco giant.

  • Special: Wall Street Buying Frenzy on Under $5 Stock
  • Tobacco companies have had a rough year, amidst long-term sales declines and a decision to pass on major investments in the growing cannabis industry.

    One trader sees some more downside, with a large put option trade on Altria (MO). On Thursday, over 9,500 contracts of the July 12th $49 put options traded, a 57-fold increase in volume on the option.

    This option, with shares at $48, is already in-the-money. So while it expires in 15 days, the option can be exercised as long as shares are under the $49 strike price.

    Any big down day for the tobacco company in the meantime should have a dollar-for-dollar move in the option as well. In short, this $1.50 option could go to $2.50 if shares drop from $48 to $47, although with so little time left on the option, there will be some noticeable loss of the remaining time premium.

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  • Action to take: For a short-term bet on a falling market, the tobacco stocks have been a good place for a trade. For those with a longer-term outlook, buying into the tobacco space at these prices can get a good entry point, and historically high dividend yields relative to where shares of companies like Altria usually trade.