Bet on double-digit drop by year-end.
The December 20th $30 put options on Kontoor Brands (KTB) saw nearly 15,000 contracts trade recently, a 90-fold explosion in volume from the prior open interest of 166 contracts and a huge sign of confidence for a drop.
The bet implies about a 20 percent downside for shares from their current price of $36.00 before year-end. With a price of just $0.53, or $53 per contract, the option has the potential for a huge move if shares drop.
Kontoor Brands, which designs and manufactures apparel products under the Wrangler and Lee brands, was recently spun off from VF Corp (VFC) in May 2019. The apparel space can go in and out of fashion, and the space is seeing a lot of insider activity right now on depressed valuations.
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Action to take: Spinoffs sometimes perform well and sometimes perform poorly, and given that mixed track record it’s hard to make a snap judgement just from that fact. The company’s financials look reasonable, with shares trading just under 10 times forward earnings, although earnings and revenue dropped in the most recent quarter.
With shares near their 52-week highs, investors may want to wait for a buying point in the low $30’s or even the high $20’s, which shares could drop to on a big market selloff.
Speculators may want to consider the December $30 put option trade, as a cheap way to hedge against a possible market selloff in the next few weeks.