Shares of medical diagnostic device company Abbott Laboratories (ABT) are down just under 10 percent in the past year. One trader is betting that shares will trend lower in the coming months.
That’s based on the November $80 puts. With 114 days until expiration, 11,118 contracts traded compared to a prior open interest of 118, for a massive 118-fold rise in volume on the trade. The buyer of the puts paid $0.68 to make the trade.
The stock recently traded for around $108, so they would need to decline just over 25 percent in the coming months for the option to move in-the-money.
While shares have traded weakly, earnings have jumped nearly 70 percent in the past year on a 10 percent rise in revenue.
Action to take: The stock isn’t terribly expensive at 23 times earnings. However, shares can likely get cheaper in the next few months on a further market selloff. The company pays a 1.7 percent dividend at present. Investors can likely get a higher yield in the coming weeks on a further selloff in shares.
For traders, the puts are an inexpensive way to bet on a further drop in shares for Abbott, and likely the market in general here. They’re likely capable of delivering mid-to-high double-digit returns on a few down days for stocks. Traders should look to take quick profits on this downside 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.