Shares of cosmetics company Coty (COTY) have nearly tripled since November, on expectations that a reopening economy will be good for cosmetics sales. One trader sees the potential for a move even higher.
That’s based on the November $12 calls. Expiring in 211 days, over 9,100 contacts traded, an 81-fold rise in volume from the prior open interest of 112. The buyer of the options paid about $0.72 to make the trade.
With shares around $8.60, shares will need to rise about 40 percent higher in order for the option to close with any value at expiration.
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With shares up about 60 percent in the past year, shares are now performing slightly better than the S&P 500 over the same time. However, a drop in cosmetics sales led to a 16 percent drop in revenue in the past year and the company has yet to earn a profit in the past four quarters.
Action to take: There’s certainly more room for upside if the company can improve its earnings and start posting profits. Even with a share price rally to $12, shares would be nowhere near their old all-time highs in the high $20 range.
The option makes sense as a play on a reopening economy, and is low-priced enough to offer triple-digit returns with little downside. That makes for a potential big winner with low risk, and looks attractive here.
Disclosure: The author of this article has no positions in the stock mentioned here, and has no intention of making a trade in the next 72 hours. The author receives no compensation from any of the companies mentioned in this article.