Retail apparel company Abercrombie & Fitch (ANF) have seen shares drop by over 20 percent in the past year. One trader is betting on more long-term pain for the company in the year ahead.
That’s based on the January 2024 $15 put options. With 357 days until expiration, 5,000 contracts traded compared to a prior open interest of 112, for a 44-fold rise in volume on the trade. The buyer of the puts paid $0.88 to bet on a further drop in shares.
The stock recently traded for about $28, so the stock would need to lose nearly half its value in the next year for the option to move in-the-money. A move to $15 is possible, given that shares hit a 52-week low of $14.02 last summer.
The retailer has posted a loss recently, and revenues dipped 3 percent last year. The slowdown in earnings has taken shares to about 70 times earnings, compared to under 10 times earnings a year ago.
Action to take: Investors may want to avoid shares of retailers now, given the slowdown in consumer spending, which will likely impact specialty retailers more than big box stores. Abercrombie & Fitch also stopped their dividend in 2020, so there’s no way to get paid to wait for sentiment to improve.
For traders, the long-term put option against shares looks like a reasonable bet that could pay off on any market decline in the next year. That would give investors an inexpensive way to profit from any downside, and the option is cheap enough to potentially be a triple-digit winner.
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 of the companies mentioned in this article.