Unusual Options Activity: Hanesbrands (HBI)

Bet on double-digit drop in shares by February.

The January 2020 $16 put options on Hanesbrands (HBI) saw nearly 7,000 contracts trade, a 28-fold surge in volume over the prior open interest of 243.

With shares trading around $15, the option is particularly unusual in that it is an in-the-money bet on shares remaining under $16 between now and January 17th, 129 days away. With a cost of $2.10 per contract, nearly $1.00 of that is in-the-money.

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  • In order for the option to make a profit by January, the company’s shares will need to drop to at least $14. Should they drop to, say, $10, the $16 bet would be worth $6, a clean triple from here.

    Action to take: The option is even more unusual given that Hanesbrands looks to be in good shape. Shares rallied over 6 percent on the day, and the company trades at less than 10 times earnings. With a 4.25 percent dividend yield, the consumer apparel company looks like a better long-term investment than a short-trade play. Shares are well below their 52-week high of $19.38, so there’s more to run, and other apparel companies have been moving higher or seeing insider buys as well.

    Consequently, the facts looks as though investors would be better off buying shares around $15.

    Speculators should be buying the January $16 calls, not the $16 puts, to profit from what looks like a further upside in shares.