Financial technology software company StoneCo (STNE) is up about 50 percent over the past year. However, one trader sees the potential for a big selloff by the end of the year.
That’s based on the January 2024 $8 puts. With 255 days until expiration, 10,027 contracts traded compared to a prior open interest of 101, for a 99-fold jump in volume on the trade. The buyer of the puts paid $0.58 to make the bearish bet.
The bet comes as shares have hit a 52-week high, and are up over 70 percent in the past month.
StoneCo provides digital financial services in Brazil, but is based out the Cayman Islands. Revenues are down 18 percent over the past year, and the company isn’t yet profitable. Estimates pus shares at about 17 times earnings.
Action to take: Investors may want to watch for an opportunity to buy shares after a selloff, not after they’ve had such a big run up so quickly. A buy under $10 could be an interesting speculation given Brazil’s long-term economic growth potential… and even more potential if the company can expand to other countries. But first it should show some profitability.
The January $8 puts look attractive as shares are likely to revert back to their longer-term trend lower in the months ahead. Given the low cost, traders can likely nab high-double-digit returns or better on a downside move in the stock.
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.