Shares of cable provider Comcast Corporation (CMCSA) hit a 52-week low on Monday before turning higher. But one trader is betting that the stock will continue to decline in the months ahead.
That’s based on the October $30 puts. With 170 days left, 16,266 contracts traded compared to a prior open interest of 894, for an 18-fold rise in volume on the trade. The buyer of the puts paid $0.93 to enter the trade.
Shares just traded near $40, so they would need to drop about $10, or 25 percent of their current value, for the option to move in-the-money. Given that the stock has traded as high as $61 just a few months ago, another $10 drop in the coming months could be possible.
Action to take: Shares are starting to look attractive at 11 times forward earnings. But with more possible downside ahead in the coming weeks, long-term investors could do better. On a drop to $30, shares would yield over 3 percent, so that could be a solid entry point, should shares drop that far.
For traders, the $30 puts have plenty of time to play out and are low-priced, making for an easy trade to scale in and out of.
Comcast is a solid stock for playing a market decline, given the company’s struggling business and hefty debt load. Traders should look for mid-double-digit gains to exit, and also look for signs of a market turnaround to close out the trade as well.
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.