Industrial conglomerate Honeywell (HON) has rallied and then faded out over the past year, leaving shares flat. One trader sees the current downtrend continuing in the coming months.
That’s based on the December $170 puts. With 98 days until expiration, 10,028 contracts traded compared to a prior open interest of 199, for a 50-fold rise in volume on the trade. The buyer of the puts paid $2.30 to make the bearish bet.
Shares recently traded for about $185, so they would need to drop $15, or just over 8 percent, for the option to move in-the-money. That would also be near Honeywell’s 52-week low of $166.63.
While shares have been flat over the past year, revenue is up 2 percent, and earnings are up nearly 18 percent. That’s pushed the company’s valuation to under 19 times forward earnings, a two-year low.
The stock has traded in a range over the past two years, with a low in the $150 range and a high over $220. That leaves shares near the lower end of their range, meaning long-term investors may want to start buying on a move lower.
Action to take: Investors may like shares, as soon as the current downtrend plays out. Honeywell currently yields 2.2 percent, but on a move closer to the $170 range would offer a higher payout.
For traders, the December $170 puts play well to the current downtrend. The option can likely deliver mid-double-digit returns before expiration.
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.