Shares of apparel company Hanesbrands Inc (HBI) have lost 60 percent of their value in the past year. One trader sees a further decline in shares in the next few weeks.
That’s based on the December 16 $5 put options. With 36 days until expiration, 8,489 contracts traded compared to a prior open interest of 101, for an 84-fold rise in volume on the trade. The buyer of he puts paid $0.08 to make the bet.
Shares recently traded for just over $7, so the stock would need to fall $2, or about 29 percent, for the options to move in-the-money. A strike price of $5 would also be well under the stock’s prior 52-week low of $6.42 per share.
Hanesbrand stock has dropped much more than the company’s fundamentals would suggest. Earnings are down 28 percent over the past year, and revenue is down 14 percent. But the company owns a number of top brands, and in the underclothing category that tends to sell steadily no matter what the economy is doing.
Action to take: Long-term investors may like shares here, provided they buy some now and look to add on a further drop. The price decline has pushed the stock’s dividend up to 8.6 percent. The payout ratio is still under 40 percent, so the dividend is likely safe for now.
For traders, the puts look interesting in the short-term. Their low price could lead to triple-digit gains on a big down day for shares in the coming week.
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.