Singapore-based e-commerce and digital finance platform
Sea Limited (SE) dropped nearly 30 percent on Tuesday. One trader expects shares to decline further in the next month.
That’s based on the September $35 puts. With 28 days until expiration, 15,097 contracts traded compared to a prior open interest of 376, for a 40-fold rise in volume on the trade. The buyer of the puts paid $0.60 to make the bearish bet.
Sea Limited recently traded near $40, so shares would need to drop about $5, or another 15 percent, for the option to move in-the-money. That would represent a new low, following the stock’s drop to the 52-week low on Tuesday.
The company hasn’t made money over the past year, but has managed to increase revenues by 5 percent.
However, the recent miss in revenues and weakness in the company’s digital services drove the decline.
That’s a high-margin business, and further weakness there could lead to shares trending lower, which suggests that this is a reasonable downside play for today’s market.
Action to take: Shares are trending lower, so interested investors should stand aside for now until the price starts to stabilize.
For traders, shares are likely to trend lower in the short-term. The September puts could see mid-to-high double-digit returns in the coming weeks, with the potential for a higher return if shares slide further.
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.