Shares of pesticide control company Rollins Inc. (ROL) have traded flat over the past year. One trader sees the possibility for a decline in the weeks ahead.
That’s based on the August $35 puts. With 22 days until expiration, 12,561 contracts traded compared to a prior open interest of 206, for a 61-fold rise in volume on the trade. The buyer of the puts paid $1.88 to get into the trade.
The stock recently traded just over $36, so the stock would need to drop less than 4 percent for the option to move in-the-money.
Shares trade for over 50 times earnings, and the company has seen earnings drop by 22 percent in the past year. That points to an overvaluation that may lead to a decline in shares in the coming weeks.
Action to take: The stock does yield about 1.1 percent here, but with declining earnings, the payment is unlikely to increase in the months ahead. Investors should look to buy shares closer to their recent 52-week low near $28.
For traders, the put options look attractive in today’s markets. The options can likely deliver mid-double-digit profits in the coming weeks. Traders may want to buy on a rally in shares and sell as soon as the stock dives.
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.