Unusual Options Activity: Confluent (CFLT)

Shares of data streaming company Confluent (CFLT) have lost just over one-third of their value in the past year. One trader is betting that the trend will continue in the coming months.

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  • That’s based on the October $22.50 puts. With 77 days until expiration, 10,162 contracts traded compared to a prior open interest of 293, for a 35-fold rise in volume on the trade. The buyer of the puts paid $2.05 to make the bet.

    Shares recently traded closer to $31. The stock would need to decline by $9, or about 30 percent, for the options to move in-the-money. That would still be well over the company’s 52-week low of $16.48.

    The software company is in its early, high-growth stage, so the firm is not yet profitable. The company has reported higher revenues in the past year, but is still rapidly burning through cash.

    Action to take: The company has enough cash at present to go through a few more losing years. It’s likely revenue will rise higher to generate a profit before then. However, there may still be some more downside ahead. Interested investors should wait until shares are back into the low $20 range.

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  • For traders, the puts are an inexpensive hedge against a further decline in tech stocks in the months ahead. Put buyers could consider buying after a major rally, and look to nab a quick mid-double-digit profit on a down day in today’s market environment.

     

    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.