Long-term bet on further drop in shares.
The January 2021 $4 put options on Banco Santander (SAN) saw over 1,000 contracts trade, a nine-fold increase on the prior number of open contracts on the option.
The put is about $0.03 in-the-money, as shares trade just south of the strike price of $4.
- The ONLY Way to Play Markets Like These
Warren Buffett said, "Price is what you pay... value is what you get."
The best investor in the world knows the only way to prosper (especially in markets like these)... is to invest in VALUE.
But this $2 stock could be the last value play in the market today.
The put seller is betting that shares will decline in the next 416 days before expiration, and shares will need to drop to at least $3.40 to provide a profit after the $0.60 purchase price.
Shares of the bank have fallen 17 percent in the past year, so the put sale is a bet on the trend continuing.
Action to take: With shares of the Spanish bank down so far already, this option only makes sense on a big market drop or if investors fear the bank’s solvency, as has been seen with a few other European banks this year.
At 8 times forward earnings, and with a generous 7.6 percent dividend yield at current prices, investors may want to consider buying shares under $4 rather than buying the put option. They could then hedge that trade with a long-dated $4 call option, shooting for a low-risk double-digit return in the next year.
Speculators could consider this put option as a market hedge, but with the underlying stock’s relative valuation and high yield, it’s not a slam-dunk opportunity like other short trades seen lately.