Consumer goods manufacturer Newell Brands (NWL) has lost over 60 percent of its value over the past year. One trader sees a rebound ahead in the coming months.
That’s based on the August $9 calls. With 52 days until expiration, 7,119 contracts traded compared to a prior open interest of 157, for a 45-fold rise in volume on the trade. The buyer of the calls paid $0.35 to make the bullish bet.
Shares recently traded just under $8, so they would need to rise about $1, or about 13 percent, for the option to move in-the-money. The strike price is well under Newell’s 52-week high of $21.55.
Newell has had a rough year, with revenues dropping by about a quarter – and profitability has been mixed. However, in its most recent earnings, shares traded for 10 times earnings, and about 8 times forward earnings.
Action to take: Newell looks oversold here, with shares going for about 0.4 times their price to sales. Plus, Newell yields about 3.5 percent at current prices following a dividend cut.
For traders, the August calls are well positioned should shares rebound in the next two months. The option is inexpensive enough to see high double-digit gains, or even double in value and hit triple-digit returns. And with a low price, even if shares continue lower, the overall loss won’t be huge.
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.