Unusual Options Activity: Hanesbrands (HBI)

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  • Bet on double-digit drop in shares by February.

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  • 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.

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  • 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.