Processed food producer Campbell Soup Company (CPB) has had a rough year, with shares down 25 percent. One trader sees further weakness into the first month of 2024.
That’s based on the January 19, 2024 $41 puts. With 24 days until expiration, 3,498 contracts traded compared to a prior open interest of 104, for a 34-fold rise in volume on the trade. The buyer of the puts paid $0.40 to make the bearish bet.
Shares recently traded near $43, so they would need to lose about $2, or just under 5 percent in a month, for the options to move in-the-money. The strike price is still well over the stock’s 52-week low just under $38.
Earnings have slid 20 percent in the past year. And the rise of new weight loss drugs is weighing on packaged food companies in general right now, even though Campbell’s offerings are less oriented towards snacks.
Even with the lackluster performance in 2023, shares trade at 14 times forward earnings, a reasonable price for a strong basket of brands and a defensive stock play.
Action to take: Long-term investors may want to pick up shares in the coming days. The stock is in a short-term downtrend and may move closer to the low $40 range in the next few weeks. Campbell’s pays a 3.5 percent dividend.
For traders, the January $41 puts are an inexpensive way to bet on some short-term downside here. That would follow the stock’s current price move lower. The option can likely see mid-double-digit returns, but be mindful as the option doesn’t have much time left to play out.
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.