Telecom service provider Frontier Communications Parent (FYBR) is up 96% over the past year. One trader is betting on shares taking a breather over the coming months.
That’s based on the December 20 $30 puts. With 64 days until expiration, 5,716 contracts traded compared to a prior open interest of 180, for a 32-fold rise in volume on the trade. The buyer of the puts paid $0.20 to make the bearish bet.
Frontier Communications recently traded for just under $36, meaning shares would need to drop by $6, or 17%, for the option to move in-the-money.
Shares of Frontier recently spiked to $39 following a buyout offer from Verizon (VZ). However, shares are slipping lower as the deal will take time and regulatory approval to follow through.
Action to take: Verizon has offered to buy Frontier for $38.50 per share. Those who think the deal will go through could buy shares now, and nab just over $2.50.
But buyer beware: If the deal falls through, shares could drop to the high $20s, where they traded before the offer came in. Frontier does not currently pay a dividend.
For traders, the December $30 puts could earn a big return if the deal falls through by year-end. The options could also see low double-digit returns if shares continue to drift lower on regulatory uncertainty.
That makes the puts an interesting trade now, and traders may want to build a position to take partial profits on a small trade and look for a potential big win.
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 company mentioned in this article.