Commerce platform Shopify (SHOP) has had a banner year, returning 81 percent, far outpacing the 15 percent return in the S&P 500. One trader sees a pullback in the coming weeks.
That’s based on the December 29 $62 puts. With 23 days until expiration, 4,387 contracts traded compared to a prior open interest of 135, for a 33-fold rise in volume on the trade. The buyer of the pus paid $0.30 to make the bearish bet.
Shopify recently traded for about $72, so shares would need to drop $10, or about 14 percent, for the option to move in-the-money.
The strike price is still well off the stock’s 52-week low of $32.35. Shares were also trading under $50 as recently as late October.
Shopify has managed to increase its revenues by 25 percent over the past year, but the company remains unprofitable. Shares look overbought in the short term and could be vulnerable to a pullback.
Action to take: Investors interested in shares should hold off for now. The coming days or weeks could see a drop lower that would make for a better entry point.
For traders, the December 29 puts could see a big jump higher from even a small pullback in shares. Traders will likely want to take quick profits as any drop lower may be brief this time of year.
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.