Artificial intelligence software company
C3.ai (AI) has had a strong year, with shares up nearly 29 percent as interest in the space has exploded higher. One trader sees shares moving lower in the weeks ahead as that interest potentially wanes.
That’s based on the June $25 puts. With 36 days until expiration, 13,509 contracts traded compared to a prior open interest of 342, for a 40-fold rise in volume on the trade. The buyer of the puts paid $6.31.
Shares recently traded for just under $20, putting the options about $5 in-the-money. Shares are well off their 52-week high of $34.68.
The company is an early-stage player. While it’s grown annual revenues to over $266 million, the company is still losing money and has a steeply negative profit margin as it looks to expand its business.
However, C3.ai has a strong balance sheet with nearly no debt, and could be an attractive long-term buy when shares fall further out of favor.
Action to take: Investors may like shares at prices in the mid-teens, with an eye towards holding the stock for several years while the growth plays out. The company is a long way from paying a dividend, and is still highly speculative.
For traders, chances are shares will trend lower as the AI story has deflated over the past few months. The June puts can likely deliver mid-double-digit profits on a big drop. Traders could also look at an out-of-the-money put to pay less to bet on falling shares.
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.