Shares of cosmetic retailer Sally Beauty Holdings (SBH) have lost nearly 42 percent in the last year. One trader sees a further drop in the weeks ahead.
That’s based on the January $10 puts. With 36 days until expiration, 7,502 contracts traded compared to a prior open interest of 349, for a 22-fold rise in volume on the trade. The buyer of the puts paid $0.20 to make the bearish bet.
Shares recently traded for about $12.00, so they’d need to lose about $2, or about 17 percent, for the option to move in-the-money. It would also mean the stock breaking through its recent 52-week low of $10.95 per share.
Sally Beauty appears to be facing a few headwinds right now. Earnings have slid nearly 70 percent in the past year, and revenue is down by 3 percent. The drop in shares has also pushed the stock’s debt-to-equity ratio to about 1:1, and rising interest rates will likely weigh on debt costs.
Action to take: Shares recently jumped off of their 52-week lows, but appear likely to continue their downtrend in the weeks ahead. Interested investors may want to wait until the company has stopped its decline in earnings before buying in.
For traders, the January puts stand a low chance of moving in-the-money. But they’re cheap enough that any downtrend in shares will likely lead to a high double-digit return for the stock or better.
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.