Dialysis machine manufacturer Baxter International (BAX) is down nearly a third over the past year. Part of the recent selloff comes as new weight loss drugs have come onto the market. One trader is betting that shares have overreacted.
That’s based on the January 2024 $35 calls. With 98 days until expiration, 6,917 contracts traded compared to a prior open interest of 205, for a 34-fold rise in volume. The buyer of the calls paid $1.50 to make the bullish bet.
Shares recently traded for about $33 near their 52-week low, so they would need to rise just $2, or about 6 percent, for the option to move in-the-money.
Baxter has been in a downtrend since July, with the selloff accelerating in recent sessions.
Revenues are up 3 percent over the past year. While not profitable in the most recent quarter, Baxter is valued at about 13 times forward earnings, a substantial discount to the overall stock market.
Action to take: Investors may like shares here as an oversold rebound trade, although the stock may take a few weeks to start trending higher again. Shares pay a 3.1 percent dividend at current prices.
For traders, the setup looks like a heavily oversold stock ready to bounce higher. That makes the January calls attractive. They have ample time for the trade to work out, and are inexpensive, potentially capable of high double-digit gains.
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.