Publishing software company Adobe (ADBE) has been sliding well off its peak. One trader sees the potential for a strong rebound in the months ahead.
That’s based on the July $575 calls. With 80 days until expiration, 1,405 contracts traded compared to a prior open interest of 110, for a 13-fold rise in volume on the trade. The buyer of the calls paid $0.90 to get in.
Shares recently traded just under $410, so they would need to rise $165, or about 40 percent, for the option to move in-the-money. That’s still well under the stock’s 52-week high of $699.54.
The stock is now down 20 percent over the past year, even as revenue grew 9 percent in the past year. Plus, the company has a strong profit margin of 30 percent.
Action to take: Shares will likely recover in time and move higher. Shares are now trading for just under 30 times earnings, their best valuation in years. Investors may like shares here, although the stock doesn’t pay a dividend.
For traders, the July calls are aggressive, and likely won’t move in-the-money. But they could still deliver a strong rebound in the coming weeks. So traders should look for a jump higher in the mid-double-digit range and grab some quick profits.
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.