Shares of footwear and accessory company Sketchers U.S.A. (SKX) are up about 11 percent over the past year. One trader sees a decline in the months ahead.
That’s based on the April $39 put options. With 74 days until expiration, 2,003 contracts traded compared to a prior open interest of 104, for a 19-fold rise in volume on the trade. The buyer of the puts paid $0.75 to make the downside bet.
The stock last traded just under $45, so shares would need to drop about $6, or nearly 15 percent, for the options to move in-the-money. The strike price is still well under the stock’s 52-week low of $31.28.
Shares have been trending higher since November, but shares saw a 9 percent drop on Friday, as the company reported earnings. While there was a beat on overall revenue and earnings, the company did see a 23 percent drop in sales to China.
Action to take: Shares are reasonably valued at about 10 times earnings. But following their recent runup, they’ll likely take a breather in the next few weeks. Patient traders should look to buy near $40 per share. At present, Sketchers doesn’t pay a dividend.
For traders, the April $39 puts look well positioned for a bigger drop in shares in the weeks ahead. With a low price, traders can likely nab high-double-digit profits before the options expire.
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.