Office and retail-oriented real estate investment trust Vornado Realty Trust (VNO) has lost about one quarter of its value over the past year. One trader sees shares trending even lower in the coming months.
That’s based on the October $15 puts. With 65 days until expiration, 4,003 contracts traded compared to a prior open interest of 145, for a 28-fold rise in volume on the trade. The buyer of the puts paid $0.25 to make the bearish bet.
Shares recently went for about $22, so they would need to drop by $7, or just over one-third, for the options to move in-the-money. The stock has more than doubled off its lows this year of $12.31, so such a move to retest the low could send the option higher.
The company’s focus on high-end office space in top markets as well as retailers is coming under fire as the San Francisco real estate market is under tremendous pressure. Other markets have held up better, such as New York, but are still not quite at their prior peaks.
Action to take: Shares likely have some downside ahead given their recent rally and the trouble in the space. The stock is now at its book value, which likely overstates some properties but understates the value of others. For now, look for a drop further.
For traders, the October $15 puts are somewhat aggressive in terms of expecting a big drop. But the options are inexpensive enough to see big returns in the weeks ahead on a sizeable drop in shares.
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.