Office real estate investment trust SL Green Realty (SLG) has seen shares slide by nearly two-thirds in the past year. One trader sees a further decline in the weeks ahead.
That’s based on the May $22.50 puts. With 64 days until expiration, 9,147 contracts traded compared to a prior open interest of 22, for a 41-fold rise in volume on the trade. The buyer of the puts paid $1.45 to make the downside bet.
Shares recently went for about $28, so the stock would need to drop about 20 percent in the next two months for the option to move in-the-money. It would also entail SL Green dropping well below its prior 52-week low of $27.28.
Investors may be concerned as the REIT is focused on office space, with an emphasis on the Manhattan market. The post-Covid office environment hasn’t been strong, but SL Green has fared well, with revenues rising 30 percent in the past year.
Action to take: Investors may want to wait for now, given the possibility of further downside. The current drop in shares has pushed the REIT’s yield to 9.8 percent, but the REIT has also cut its total payout in the past year.
For traders, the put may be an inexpensive way to hedge today’s market and other long positions. On a further drop, the option can potentially offer buyer high-double-digit returns.
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.