Shares of healthcare diagnostics company Sotera Health Company (SHC) have slid 15 percent over the past year, performing worse than the S&P 500. One trader sees a further decline ahead.
That’s based on the August $17.50 put. With 191 days until expiration, 3,955 contracts traded compared to a prior open interest of 151, for a 26-fold rise in volume on the trade. The buyer of the puts paid $2.35 to make the bearish bet.
Shares recently traded for about $18, so Sotera shares would only need to drop about 3 percent for the option to move in-the-money.
The stock has been on a wild ride over the past year. Shares dropped on a class action lawsuit alleging pollution at one of the company’s facilities. And shares soared on news of a settlement in January. But shares are not yet back to their pre-lawsuit announcement levels.
Action to take: Shares trade at about 18 times forward earnings. Revenues are up 10 percent over the past year.
However, there may be some lingering concerns over using the company’s products in light of the lawsuit, which may impact future profitability. Investors may want to consider shares too complicated to go long on at this time.
Given how quickly shares have bounced back, a move lower looks likely. That makes the August puts well priced. The options will also likely fare well in a general market decline.
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.