Student lending service company SLM Corporation (SLM) is up 44% over the past year, roughly double the return of the S&P 500. One trader sees a potential pullback in the coming months.
That’s based on the July $20 puts. With 80 days until expiration, 6,008 contracts traded compared to a prior open interest of 107, for a 56-fold rise in volume on the trade. The buyer of the puts paid $0.46 to make the bearish bet.
SLM shares recently traded for just under $22, so they would need to drop by about 10% in the next few months for the option to move in-the-money. That’s still well over SLM’s 52-week low of $12.26 per share.
Shares have been in a strong uptrend for months, but the lender is still valued at just 8 times forward earnings.
The company is a bit pricey measured by its assets. Shares are trading at nearly 3 times its book value, or the rough value of SLM’s book of loans.
Action to take: With a strong uptrend in place, any pullback may likely be short-lived for now. Investors may want to use a pullback to buy shares as a speculation on further price appreciation in the months ahead.
For traders, the July $20 puts may pay out mid-double-digit gains on any pullback in the next few days. After that, it’s likely that the stock will move back to its long-term uptrend.
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 company mentioned in this article.