Shares of search engine giant Alphabet (GOOG) have shed 44 percent of their price in the past year. One trader sees a further decline ahead for shares in the next month.
That’s based on the December 9 $80 puts. With 31 days until expiration, 12,579 shares traded compared to a prior open interest of 183, for a 68-fold jump in volume on the trade. The buyer of the puts paid $1.42 to make the bearish bet.
Shares recently traded just over $86, so the stock would need to decline about 8 percent in the next month for the option to move in-the-money. It would also require shares to break below their recent 52-week low of $83.45.
With earnings down 26 percent in the past year, such a move is possible. But the stock may be closer to a long-term bottom, as the company now trades for about 16 times forward earnings, a modest discount to the overall market.
Plus, the company continues to own the dominant market share for its industry.
Action to take: Long term buyers could potentially start buying shares in the mid-$80 range. While the company doesn’t pay a dividend, Google shares are going for their best valuation ever, and the company has a robust balance sheet and new projects that can move the bottom line higher for years to come.
For traders, the December puts can likely deliver mid-double-digit gains, particularly on a big selloff in shares in the next few weeks. Look for a big down day in the stock to take quick profits with this trade.
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.