Digital platform Sea Limited (SE) is up 121% over the past year, and is up nearly 50% alone since August. One trader sees shares pulling back over the coming months.
That’s based on the December 20 $82.50 puts. With 78 days until expiration, 10,001 contracts traded compared to a prior open interest of 320, for a 31-fold rise in volume on the trade. The buyer of the puts paid $2.70 to make the bearish bet.
Sea Limited shares recently traded for about $98, right at their 52-week high, so the stock would need to decline by $15.50, or just over 16%, for the option to move in-the-money.
Meanwhile, Sea shares have been on a tear despite mixed results. Revenues are up 23% over the last 12 months, but earnings have collapsed by 75% as the company lost $200 million.
That puts shares trading at a hefty 48 times forward earnings.
Action to take: Shares are starting to look overextended in the short-term, with a recent RSI rating of 83, a sign well into overbought territory. Interested investors should wait for a pullback before buying.
Based on how overbought shares are, traders have an opportunity on the short side right now. That plays well to the December $82.50 puts, which could see mid-to-high double-digit returns in the coming weeks. Traders will likely want to take profits well before expiration on any sudden drop in shares.
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 company mentioned in this article.