Texas-based utility CenterPoint Energy (CNP) has shed 16 percent over the past year. One trader sees a further decline ahead for the stock.
That’s based on the January 2024 $30 puts. With 129 days until expiration, 4,000 contracts traded compared to a prior open interest of 105, for a 40-fold rise in volume on the trade. The buyer of the puts paid $2.41 to make the bearish bet.
CenterPoint recently went for about $28, meaning the option is already about $2.00 in the money. Shares have a 52-week low of $25.03.
The utility has been a poor performer operationally, with revenues dropping 4 percent over the past year. Earnings are down by nearly 38 percent as well.
The company’s performance suggests more downside ahead. Shares last traded for about 24 times earnings, which isn’t a bargain, even for a utility stock.
Action to take: Investors may like shares closer to a retest of the $25 lows. At current prices, shares pay a 2.8 percent yield, which is on the low end historically for a utility stock.
For traders, the January puts should see mid-to-high double-digit gains in the months ahead, as shares look likely to decline further. That makes them a reasonable option trade now, and one that could also fare even better in a strong market selloff.
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.