Specialty chemical producer Huntsman Corp (HUN) is down 7% over the past year. One trader is betting shares will continue to trend down over the next two months.
That’s based on the August $22 puts. With 58 days until expiration, 20,453 contracts traded compared to the prior open interest of 182, for a massive 112-fold rise in volume on the trade. The buyer of the puts paid $0.40 to make the bearish bet.
Huntsman shares recently traded just over $23, so they would need to drop by just over $1.00, or 4.3%, for the option to move in-the-money. The strike price is right near Huntsman’s 52-week low of $22.14.
Operationally, it’s easy to see why shares are struggling. The company lost money overall last year, and revenues slid by nearly 9%.
While the global economy is expanding and the demand for specialty chemicals should likewise rise, the slowdown here indicates potential danger ahead.
Action to take: Prospective investors may be interested in shares given the hefty 4.3% dividend yield here.
However, that yield represents 180% of the company’s current earnings. A dividend cut could be on the horizon, which would further impact shares. Best for interested traders to wait for now.
For traders, the August $22 puts look attractive, given the current downtrend here. The options could see high double-digit returns or better, especially if shares break down to a new low.
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.