Clothing retailer Victoria’s Secret (VSCO) is up nearly 30% over the past year, but shares started to decline following earnings. One trader sees a further decline in the weeks ahead.
That’s based on the October 18 $23 puts. With 45 days until expiration, 5,247 contracts traded compared to a prior open interest of 198, for a 26-fold rise in volume on the trade. The buyer of the puts paid $1.20 to make the bearish bet.
Victoria’s Secret shares recently traded for about $24, meaning they would need to decline by about $1, or just over 4%, for the options to move in-the-money. Shares are well off their 52-week high of $30.80, and could gap down to the low $20 range.
Revenues are down 3% over the past year, and earnings growth have been negative. Shares look a bit like a value trap, as the stock trades at just 13 times earnings, but Victoria’s Secret also carries significant amounts of debt.
Action to take: With shares potentially facing a downtrend and an open gap around the $20 range, interested investors can likely get a better price in the weeks and months ahead and should avoid shares for now.
For traders, the October $23 puts are well positioned for a quick downturn over the weeks ahead. Depending on the severity of the downturn, investors could see mid-to-high double-digit returns.
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.