Shares of data center REIT Digital Realty Trust (DLR) are down 20 percent over the past year. One trader sees the possibility for a further decline in the months ahead.
That’s based on the October $105 puts. With 128 days until expiration, 8,515 contracts traded compared to a prior open interest of 123, for a 69-fold rise in volume on the trade. The buyer of the puts paid $3.55 to get into the trade.
Shares recently traded around $127, so they’d need to fall $22, or another 17 percent in order for the options the move in-the-money. It would also be a significant new low, given the prior 52-week low of $124 per share.
Earnings have sunk 81 percent in the past year, even as revenue has risen by 11 percent. However, a slowing economy and tech space could weigh on the company’s prospects for some time to come.
Action to take: Shares are expensive at 111 times earnings, and the company’s dividend payout ratio just matches its earnings, so a cut could be in the future if earnings continue to slide. Given the company’s high debt load, shares likely have room for a further decline in the months ahead.
For traders, the put options look like an attractive downside bet in today’s market. The puts can potentially see mid-to-high double-digit gains in the months ahead should shares continue their current decline.
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.