Shares of trucking company Knight-Swift Transportation Holdings (KNX) have been in an uptrend for the past few months. One trader sees the rally losing steam in the coming weeks.
That’s based on the May $45 puts. With 49 days until expiration, 7,549 contracts traded compared to a prior interest of 202, for a 37-fold rise in volume. The buyer of the puts paid $0.45 to make the trade.
Shares of the trucking company are up 12 percent over the past year, just slightly lagging the S&P 500 index. But the real issue comes from rising fuel costs, which will likely weigh on profitability, even with surcharges and the like priced in. Plus, a labor shortage has been acute in the trucking industry, and automated trucking technology is still a few years out. That could also weigh on costs.
Action to take: The stock has already come down about 15 percent off of its peak from December, as gas prices have continued to rise and as oil has hit an 8-year high. Chances are as long as oil prices remain over $100 per barrel, the company will see shares decline.
For traders, the option expires right around the time the company will report first-quarter earnings. Since that timeframe includes the recent big spike in oil prices, it may be a good bet to expect a poor earnings report and a short-term decline. That makes these options an inexpensive way to potentially hedge from today’s high oil prices.
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.