Shares of semiconductor test systems company Aehr Test Systems (AEHR) have declined 2 percent in the past year, as a massive drop gave way to a recovery rally. One trader sees another drop ahead.
That’s based on the March 2023 $22.50 puts. With 142 days until expiration, 2,016 contracts traded compared to a prior open interest of 101, for a 20-fold rise in volume on the trade. The buyer of the puts paid $5.35 to make the bearish bet.
The stock recently traded just under $22, putting the option slightly in-the-money already. While shares have been flat overall in the past year, the stock has traded as low as $6.71 when it bottomed out in July.
The company has also been in an unusual spot operationally. Revenue is up 89 percent, but earnings are down 15 percent over the past year. And the stock goes for over 70 times earnings.
Action to take: As a tech trade, shares may be vulnerable to a pullback in the market in the coming weeks and months. That means interested investors should hold off on buying shares, especially after its big rally from the summer lows.
For traders, the March puts are well positioned for gains on a decline in share price. Traders can likely see mid-double-digit gains from this in-the-money trade in the months ahead.
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.