Automotive replacement parts producer Genuine Parts Company (GPC) recently declined close to 52-week lows following a big earnings miss. One trader sees a further decline over the coming weeks.
That’s based on the December 20 $115 puts. With 51 days until expiration, 22,618 contracts traded compared to a prior open interest of 160, for a massive 141-fold rise in volume on the trade. The buyer of the puts paid $3.20 to make the bearish bet.
Genuine Parts Company shares recently traded for about $119, so the stock would need to drop by $4, or about 3.4%, for the option to move in-the-money.
GPC recently hit a 52-week low of $112.74 before starting to bounce higher.
Operationally, revenues rose just 3% last year, but higher costs led to total earnings dropping by 35%. Even with this mixed year, shares still trade at 14 times forward earnings.
Action to take: Shares pay a 3.5% dividend here, with a sustainable payout ratio. Long-term investors who expect the auto parts industry to thrive may want to build a stake now and use any further weakness to add to that position.
For traders, shares are consolidating after a big selloff. They could eventually break that consolidation in either direction. A re-test of the 52-week low before heading sustainably higher looks more reasonable. That makes the December $115 puts a play for now. That said, traders could also look for a retest of that low to take profits and go long.
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.