Unusual Option Activity Hinting at Downside For This Stock?

Amid today's sharp pull back in stocks, was some highly unusual option trades.  One in particular really caught my eye.  Today's action is sizeable bet on downside for a stock that has rallied significantly over the last few years.  It rest just off its all time record highs.

$NWL is just weeks removed from closing over $40 a share, an all time high for the name.  It has since pulled back $1.50 but judging from today's action action, there could be more downside to come.

There was a tremendous amount of buying interest in the PUTs with almost all the action taking place on the ask.  The buyer(s) wasn't being patient getting into the position.

The March, April, and June months were being bought on the $38 strike, which is just $.50 away.  The April strike price of $.65 seems fairly reasonable considering the time until expiration and the distance from being in the money.

Options are pricing in a $1 move to March expiration, a $2 move to April, and a $3.50 move by June expiration.

The most of the trades were new options as some of the strikes have absolutely no open interest:

It's not like someone has been accumulating PUTs for $NWL over the last few weeks or months.  Today someone decided they needed to get into $NWL puts and they were willing to do it at whatever price was on the offer.  We've seen this story before, and it usually has a similar happy ending.

Of course this could be a nervous long, buying protection.  That is a possibility.  The stock is up from $10 only a few years ago.  But in my opinion this is someone positioning to profit from a sharp move to the downside.

After briefly researching some of the company financials two things that popped out at me.

(1)The company has over $2.4 billion in debt, which is nothing to worry about when you can refinance it at 0.00%, however when interest rates start to rise....

(2)The company already projects some issues with currency strength, if the US dollar continues its rally....

The option activity today could have nothing to do with debt or currency impacts, perhaps someone knows something we don't?

We will soon find out.  The option trades go out to June with the largest volume coming in April.  In a few weeks if $NWL has dropped under $37.25 the option trades made today will start bringing home the bacon.

I'll let you know if I piggy back on this action as I did with $BXP and $SPG.


If you would like to discuss.  Please comment below.  Thanks!

Known to most as Uranium Pinto Beans, Jason has more than 15 years under his belt of trading stocks, options and currencies. His expertise primarily lies in chart analysis, and he has a strong eye for undervalued stock. Because he’s got the ability to identify great risk/reward trades he usually enjoys taking the path less traveled and reaping the benefits from the adventure.

He is a co-founder of Option Millionaires, and he is best known for his weekly webinars with Scott, as well as his high level training webinars and charts found in the forums.

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