Toymaker Hasbro (HAS) has seen its shares drop nearly one-third over the past year. While the stock has rallied in recent weeks, one trader sees a further decline ahead.
That’s based on the August $55 puts. With 93 days until expiration, 4,008 contracts traded compared to a prior open interest of 108, for a 37-fold rise in volume on the trade. The buyer of the puts paid $1.73 to make the bearish bet.
Shares recently traded for about $62.50, so the stock would need to drop about 12 percent in the coming months for the option to move in-the-money. The $55 strike price is well over the stock’s 52-week low of $45.75.
Earnings have dropped 14 percent over the past year, and the company’s slip in profitability has caused shares to surge to over 68 times earnings.
Action to take: While the company owns a number of respected entertainment brands, chances are shares will slide lower over the summer. If they drop enough, the stock may be worth buying ahead of the holiday shopping season.
Hasbro’s 4.6 percent dividend yield looks like it may pay investors well to wait for a rebound in shares, but the payout ratio is over 300 percent of earnings, so a possible dividend cut could occur soon, which would take shares lower.
For traders, the stock’s recent move higher could stall out over the summer months and the downtrend could resume. That makes the August calls a reasonable speculation, with the prospect of delivering traders mid-double-digit returns.
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.