Computer manufacturer Dell Technologies (DELL) is up 155% over the past year as surging AI demand is boosting computer sales. One trader sees a pullback ahead over the coming weeks.
That’s based on the September 20 $105 puts. With 64 days until expiration, 4,512 contracts traded compared to a prior open interest of 192, for a 24-fold rise in volume on the trade. The buyer of the puts paid $1.90 to make the bearish bet.
Dell shares recently traded for about $135, so shares would need to drop by $30, or over 22%, for the option to move in-the-money.
Given that Dell already peaked at $179.70 in late May, a further downtrend could push shares down quickly.
However, any drop in shares could prove short-lived. Dell is priced at 18 times forward earnings, so is hardly expensive by any means. Plus, earnings have jumped nearly 65% in the past year, a healthy sign for long-term gains.
Action to take: Investors interested in shares may be able to get them slightly cheaper in the coming weeks, as they appear to be trending lower. At current prices, Dell pays a 1.3% dividend, but patient investors could get a higher yield.
For traders, the September puts are well positioned for a brief downside in both Dell shares and the market in the coming weeks. Traders can likely see mid-to-high double-digit returns depending on the extent of any pullback.
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.