Outsourcing and IT services giant Genpact Limited (G) is up 6% over the past year, far lagging the overall stock market. One trader sees shares trending lower into the end of the year.
That’s based on the December 20 $30 puts. With 92 days until expiration, 4,000 contracts traded compared to a prior open interest of 130, for a 31-fold rise in volume on the trade. The buyer of the puts paid $0.20 to make the bearish bet.
Genpact shares recently traded for about $38.50, so the stock would need to drop by $8.50, or about 22%, for the option to move in-the-money. The strike price is also right near Genpact’s 52-week low of $29.41.
Besides the low stock return over the past year, Genpact has shown slow growth, with earnings up 5%, and revenues up 6%. Neither of those trends suggests that shares may look to re-test their lows in the coming months, but a big drop could occur when the company reports earnings in early November.
Action to take: Shares have been trending higher recently, but are showing signs of weakness. Interested investors should wait for a pullback in shares before buying. Genpact currently pays a 1.6% dividend.
For traders, the December 20 $30 puts are aggressive, but inexpensive enough to see high-double-digit or even triple-digit returns on a sharp pullback in shares. If traders see that kind of return, take a quick profit rather than try and hold the trade until expiration.
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.