Shares of digital communications company Avaya Holdings (AVYA) have been sliding in recent months. One trader sees further downside ahead in the coming days.
That’s based on the June 17th $3.00 put option. With 21 days until expiration, 20,384 contracts traded hands, compared to a prior open interest of 368, for a 57-fold rise in volume on the trade. The buyer of the puts paid $0.53 to bet on a further downside.
Shares recently traded for about $3.20, so they’d need to fall just over 6 percent for the option to move in-the-money. Shares are down nearly 90 percent from their 52-week highs of $29.55.
Revenue is down a scant 3 percent in the past year, but the company has yet to be profitable. Shares look somewhat attractive at 3 times forward earnings, but the company’s size relative to its debt load shows why investors may want to make a bet on the short side instead.
Action to take: Investors should steer clear of shares here. There’s no dividend to pay, and given that the company isn’t making money, it would have to either draw down cash or go into debt to pay one.
For traders, the June puts have a few weeks to play out. Given the decline in shares, they should trend lower. But a strong count-rally could occur. Given the low price of these put options, however, this looks like an attractive bet to make, particularly after a day when shares rally. Look for a quick profit given the short amount of time on the trade.
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.