Shares of apparel manufacturing company V.F. Corporation (VFC) are down about 55 percent over the past year. One trader sees further downside in the next three months.
That’s based on the May $22.50 puts. With 95 days until expiration, 20,019 contracts traded compared to a prior open interest of 245, for an 82-fold rise in volume on the trade. The buyer of the puts paid $0.98 to make the bearish bet.
Shares recently traded for about $26, so the stock would need to decline about $4.50, or 15 percent, for the options to move in-the-money. The $22.50 strike price would be a new low for VFC, as the stock currently has a 52-week low of $25.05.
The company only saw a slight drop in revenues and earnings last year – about 3 percent and 2 percent, respectively. However, apparel designs can become outdated quickly. And in a slowing economy, consumers may not spend as much on apparel.
Action to take: The company slashed its dividend payout nearly in half last year, but shares still yield about 4.2 percent. The payout is nearly twice the level of the company’s earnings, so further cuts could be ahead. Investors should look to avoid shares for now.
For traders, the options are inexpensive, and a reasonable bet on the direction of shares in the coming months. Traders should look for mid-to-high double-digit gains for a chance to take profits.
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.