Telecom provider Frontier Communications Parent (FYBR) is down 17 percent over the past year as the telecom space has been a poorly-performing part of the market. One trader sees further downside ahead.
That’s based on the May $22.50 puts. With 80 days left until expiration, 10,530 contracts traded compared to a prior open interest of 295, for a 36-fold rise in volume on the trade. The buyer of the puts paid $2.50 to make the bearish bet.
Frontier shares recently traded for about $22.10, so the options are already about $0.40 in-the-money.
Shares have been trending lower in recent weeks from a price point near $25, and are still well over their 52-week low of $11.65.
Operationally, the telecom has seen earnings collapse by 90 percent. Revenues are down by 1 percent over the past year.
And the company’s debt levels have been on the rise as money continues to be spent on upgrading the telecom network.
Action to take: Investors have better places to invest in the telecom space. Besides losing money right now, Frontier doesn’t have the free cash flow to pay a dividend so investors can get paid to wait.
For traders, the May $22.50 puts are well positioned for a further drop in shares in the coming weeks. The options could potentially see mid-double-digit returns in the coming weeks.
More aggressive traders could look for options that are still out-of-the-money.
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 company mentioned in this article.