Digital infrastructure operator DigitalBridge Group (DBRG) has traded flat over the past year. One trader sees the potential for shares to decline over the coming weeks.
That’s based on the November 15 $14 puts. With 27 days until expiration, 5,179 contracts traded compared to a prior open interest of 116, for a 45-fold rise in volume on the trade. The buyer of the puts paid $0.15 to make the bearish bet.
Digital Bridge shares recently traded for about $15.85, so the stock would need to decline by $1.85, or about 12%, for the option to move in-the-money.
The strike price of the option is right over the stock’s 50-day moving average of $13.45, a reasonable point for a pullback. Shares have been in a strong uptrend since September.
Operationally, the company has been performing well. Revenues are up 105% over the past year, and shares trade at about 6 times earnings.
Action to take: Shares could see some weakness over the coming days, but the recent uptrend is likely to hold. Investors may be better off buying shares on any drop under $18. DigitalBridge also pays a 0.3% dividend.
For traders, the November 15 $14 puts play well to any short-term market fear. The company next reports earnings on November 1, and a post-earnings miss could cause the put options to soar in value. If there’s a post-earnings selloff, the options could see high double-digit returns or better depending on the size of the move.
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.