Shares of regional bank Synchrony Financial (SYF) are trading near a 52-week low. One trader sees the stock moving even lower in the coming months.
That’s based on the September $29 puts. With 122 days until expiration, 7,966 contracts traded compared to an open interest of 100, for an 80-fold surge in volume on the trade. The buyer of the puts paid $1.80 to make the downside bet.
Shares last traded around $33.50, so the bank would need to drop more than 15 percent for the trade to move in-the-money. That would still only place the bank down less than 50 percent from its 52-week high of $52.49.
The bank saw revenue rise just 1 percent last year, but earnings slid 9 percent. While the bank has a solid profit margin and trades low relative to earnings, rising interest rates and a slowing economy could curb those earnings going forward.
Action to take: Shareholders should hold off on buying here. The stock trades at 1.4 times its book value. Typically in a recession, investors can buy shares of a bank at or under book value. Plus, while the stock’s starting yield of 2.6 percent looks attractive, there hasn’t been any growth recently.
For traders, The September puts have ample time to play out, and in a market selloff, a 15 percent move in a bank stock is easily achievable. From the current price, traders could likely make mid-to-high double-digit gains in the weeks ahead, and even close out the trade well before expiration.
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.