Fast food chain The Wendy’s Company (WEN) is up 8% over the past year, far underperforming the S&P 500. One trader sees shares declining over the coming weeks.
That’s based on the December 20 $18 puts. With 46 days until expiration, 27,484 contracts traded compared to a prior open interest of 724, for a 38-fold rise in volume on the trade. The buyer of the puts paid $0.35 to make the bearish bet.
Wendy’s shares recently traded for just over $19, so shares would need to drop by at least $1, or 5.3%, for the option to move in-the-money.
Wendy’s recently tried to re-test its 52-week high of $20.65 per share, set back in May, but failed and is now trending lower.
Given the prior chart trend, shares may find some support in the $17-18 range in the weeks ahead. From there, the price may reverse higher, or could continue to trend lower depending on conditions.
Action to take: Interested investors can likely get a lower price over the coming weeks. Wendy’s currently pays a dividend of 4.9%, but patient investors can likely get over 5%.
For traders, the December 20 $18 puts are an inexpensive way to bet that the recent selloff in shares will continue. Traders will likely want to take profits on signs that shares are finding support again.
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.