Regional bank Axos Financial (AX) is flat over the past year, missing out on the market rally. One trader sees downside ahead for shares in the coming weeks.
That’s based on the October $37.50 puts. With 28 days until expiration, 13,262 contracts traded compared to a prior open interest of 105, for a staggering 126-fold rise in volume on the trade. The buyer of the puts paid $1.75 to make the bearish bet.
Shares recently traded for about $39.50, so the stock would need to drop about $2.00, or about 5 percent, for the options to move in-the-money. That’s well over the stock’s 52-week low of $33.15 per share.
The bank has posted strong growth over the past year, with a 23 percent rise in revenue and a 51 percent jump in overall earnings. Plus, Axos has a 35 percent profit margin.
Action to take: Shares look inexpensive here at 7 times forward earnings. However, any weakness in markets in the coming weeks could make shares a bit cheaper. So interested investors may want to buy a partial stake now, and look to buy on a dip.
For traders, the puts are well positioned for a short-term drop in the financial company’s stock. That could also play well as a general market hedge, and deliver mid-double-digit returns in just a few 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.