Video conferencing company Zoom Video Communications (ZM) is trading flat over the past year. One trader sees shares trending lower in the months ahead.
That’s based on the June $80 puts. With 107 days until expiration, 48,505 contracts traded compared to a prior open interest of 365, for a massive 133-fold rise in volume on the trade. The buyer of the puts paid $11.40 to make the bearish bet.
Zoom shares recently traded for about $70, meaning the $80 puts are already about $10 in-the-money. The stock is closer to its 52-week high of $75.90 than its low of $58.87.
Operationally, Zoom has had revenue growth of less than 3 percent in the past year. And the company has been barely profitable.
However, shares are now trading at 14 times forward earnings. And the company has nearly $22 per share in cash on the books with no meaningful debt. That means that the risk of bankruptcy or a capital raise are off the table.
Action to take: Shares are trending lower right now, but interested investors could start building a position now, and adding to it on further declines.
For traders, the June $80 puts can likely deliver mid-double-digit profits on a further decline in the coming weeks. Traders will want to take profits on the first sign that shares are starting to turn around.
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.