Shares of Clover Health Investments Corp (CLOV) have shed half their value since late December. At least one trader sees a further decline ahead.
That’s based on the May 25th $9 put options. With 32 days until expiration, over 9,400 contracts traded hands, a 75-fold rise in volume from the prior open interest near 125. The buyer of the contract paid about $1.42. With shares just under $10, the option is slightly out-of-the-money.
Come expiration, shares will need to trade lower than $7.60 for the option buyer to profit. That’s about halfway between the current price and the 52-week low of shares at $6.31.
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Clover Health is a Medicare Advantage insurer. Shares went public less than a year ago via a SPAC merger, as the company is focused on expanding digital healthcare options.
Action to take: The company grew revenues by 66 percent last year, but is still a ways away from turning a profit. That could continue to weigh on the share price. Company insiders also still own about 25 percent of shares, but could also add to selling pressure.
That makes this option a solid way to play the downtrend in the SPAC space, a likely slowdown in digital healthcare trends as the pandemic recedes, and a reasonable hedge against any market hiccup in the next few months.
Disclosure: The author of this article has no positions in the stock mentioned here, and has no intention of changing or starting a new position in the next 72 hours. The author receives no compensation from any of the companies mentioned in this article.