Shares of international bank Canadian Imperial Bank of Commerce (CM) have slid over 25 percent in the past year. One trader sees a further decline for the stock in the months ahead.
That’s based on the September $35 puts. With 212 days until expiration, 5,500 contracts traded compared to a prior open interest of 158, for a 35-fold rise in volume on the trade. The buyer of the puts paid $0.45 to make the bearish bet.
Shares last traded for about $46.50, so the stock would need to fall about $11.50, or about 25 percent, for the options to move in-the-money. CM shares would also need to drop below their prior 52-week low of $39.40.
Operationally, the company has been performing better than shares. Revenues dropped by about 1 percent last year, and earnings slid 18 percent. That’s not too bad considering the rapid rise in interest rates and slowdown in banking activity.
Going forward, however, that trend will likely continue for the foreseeable future.
Action to take: While shares look inexpensive at just over 9 times earnings, the bank still trades at a premium to others based on its book value. Patient investors may want to wait for a drop under $40 before buying, where the bank’s dividend yield will be closer to 6 percent.
For traders, the September puts are inexpensive enough to deliver high-double-digit returns, or even triple-digit returns, in the coming months.
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.