Shares of discount retailer Big Lots Inc (BIG) have been trending down over the past year. One trader sees shares bucking that trend in the next month with a move higher.
That’s based on the September $25 calls. With 37 days until expiration, 6,856 contracts traded compared to a prior open interest of 140, for a 49-fold rise in volume on the trade. The buyer of the calls paid $1.80 for the trade.
The stock recently traded for just under $24, so the stock would only need to rise just over $1.00 for the option to move in-the-money.
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With shares down nearly 60 percent in the past year, it’s clear the market is skeptical of such a move. The retailer has seen revenue slide 15 percent in the past year, the company isn’t currently profitable, and there’s a sizeable amount of debt relative to the company’s market cap.
Action to take: Shares look enticing with a 5.5 percent dividend yield right now. But that’s too high, especially if earnings continue to miss. The market is warning on a potential dividend cut here. Interested investors should wait until after such a cut before buying.
For traders, the trend is your friend. Look at puts instead of calls. The October $20 put, last going for about $1.60, can likely deliver mid-double-digit gains in the coming weeks should shares continue their existing downtrend. The option could even move in-the-money if shares go back to their 52-week low just over $18.
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.