Shares of real estate analytics company Zillow Group (Z) are down 61 percent over the past year, with shares dropping well ahead of the current slowdown in the housing market. One trader sees a further drop ahead.
That’s based on the October $40 puts. With 32 days until expiration, 6,502 contracts trade compared to a prior open interest of 173, for a 38-fold rise in volume on the trade. The buyer of the puts paid $5.48 to make the bet.
Shares of Zillow recently traded just over $35, so the puts are already over $4 in-the-money. However, the stock is well over its 52-week low of $29 per share, which it may retest in the coming weeks.
Earnings and revenue are down about 20 percent in the past year, and will likely continue to drop as the one once red-hot housing market continues to cool. That also suggests further downside as the company sees lower revenue.
Action to take: While shares have already lost over two-thirds of their peak value, there’s likely more downside ahead, given the potential weakness in the housing market. Interested investors should avoid shares for now, and look to buy on a drop back into the $20s.
For traders, the October puts don’t have much time to play out, but can likely deliver mid-double-digit gains. That’s a good return, given that the trade is already in-the-money. Traders willing to take on more risk could use a lower strike price and buy an out-of-the-money put option.
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.