Media conglomerate Warner Bros Discover (WBD) has been out of favor with the market, sinking 41% over the past year. One trader sees further downside in the coming weeks.
That’s based on the May 31st $8 puts. With 43 days until expiration, 125,286 contracts traded compared to a prior open interest of 111, for a massive 1,129-fold rise in volume on the trade. The buyer of the puts paid $0.52 to make the bearish bet.
Warner Bros shares recently traded for about $8.15, so the stock would need to decline less than 2% for the option to move in-the-money. The stock is hovering near its 52-week low of $8.02.
Besides the media space remaining out of favor, Warner Bros has lost money over the past year, following a 6.7% drop in revenues. The company also has about $3 in debt for every $1 in equity following the latest selloff.
On the plus side, the recent drop takes shares to about half their book value, and 0.5 times their price to sales, inexpensive valuation measures.
Action to take: For now, avoid the shares. With the stock looking to retouch its lows, investors should wait first. If shares can hold the recent lows, they could be in a place to start trending higher. But there’s just as good a chance of shares breaking lower.
For traders, the May $8 puts are inexpensive. If shares hold the lows, they’ll expire worthless. If the stock breaks lower, the option could see high double-digit returns in the next few weeks.
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.