Healthcare facility real estate investment trust (REIT) Medical Properties Trust (MPW) has lost over half its value in the past year amid rising interest rates. One trader sees further downside in the weeks ahead.
That’s based on the November $4 puts. With 51 days until expiration, 50,467 contracts traded compared to a prior open interest of 596, for an 85-fold rise in volume on the trade. The buyer of the puts paid $0.25 to make the bearish bet.
Shares recently traded for about $5.30, so the stock would need to lose another 25 percent of its value in the coming weeks for the trade to move in-the-money.
MPW has a 52-week low of $5.13, and is in a sharp downtrend. If it continues, the puts could increase in value for a while, even if they don’t move in-the-money.
The company is trading weakly right now because it isn’t earning a profit, revenues are down 15 percent compared to the prior year, and there is about $3 in debt for every $1 in equity.
Plus, the company is paying out a dividend greater than its income, after already cutting its payout in half.
Action to take: Shares will likely trade weaker with interest rates rising. When that situation changes, Medical Properties Trust can likely see a strong rebound trade.
For traders, the November $4 puts look attractive, and can likely deliver mid-double-digit gains or better in the weeks before expiration.
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.