Shares of office real estate investment trust Vornado Realty Trust (VNO) are down over 50 percent from their peak price in 2015. While recovering from last year’s work-from-home trends, one trader sees a decline in shares in the coming months.
That’s based on the September $40 puts. With 127 days until expiration, over 10,535 contracts traded against a prior open interest of 175, for a 60-fold rise in volume.
With shares around $46, the option would move in-the-money on a 15 percent decline. The buyer of the puts paid about $1.78.
Vornado has a focus on office space in New York City, the Bay Area, and Chicago. All three markets have been hit hard by the pandemic and the rise of work-from-home trends. Vornado has seen revenue drop 12 percent over the past year, even as earnings have risen.
The company has also cut its dividend slightly already, from $2.25 annually to $2.12. With the company reporting a loss last year, its dividend payout ratio is far in excess of earnings.
Action to take: This looks like an inexpensive hedge trade for the overall market. The company is poorly poised for today’s real estate trends, and a further cut in the dividend could lead to a quick drop in shares from here.
Investors may like this trade as a hedge against the overall market, or to bet that certain office markets will take a much longer time to get back to pre-pandemic activity.
Disclosure: The author of this article has no positions in the stock mentioned here, and does not intend to make a trade on this company after the next 72 hours. The author receives no compensation from any of the companies mentioned in this article.