Candy and confection producer The Hershey Company (HSY) is down 30% over the past year. One trader sees the potential for further downside in the weeks ahead.
That’s based on the June $195 puts. With 57 days until expiration, 6,675 contracts traded compared to a prior open interest of 166, for a 40-fold rise in volume on the trade. The buyer of the puts paid $12.25 to make the bearish bet.
Hershey shares recently traded for about $187, meaning the options are about $8 in-the-money. The stock is coming off its most recent 52-week low of $178.82.
While Hershey managed to see its revenue rise less than 1% in the past year, overall earnings fell by 12%. Adding in fears about the impact of new weight loss drugs and soaring cocoa prices, and it’s easy to see why shares have fallen on hard times.
Action to take: Long-term investors may want to build a partial stake here, and use any further weakness to add to that position. Hershey is an industry leader facing some significant, but temporary, challenges.
Plus, at current prices, Hershey pays a 2.9% dividend.
For traders, the June puts may deliver a quick mid-double-digit profit in the short-term. If shares retest the low and start trending higher, it may be a sign to go long shares or to buy call options further out.
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.