Hasbro (HAS) reported lower results for 2022 but said it would keep its dividend, giving the stock a 5.5% yield. But a large investor has likely both shorted and gone long a pair of put options. This showed up in today's Barchart Unusual Stock Options Activity Report.
On Feb. 16 the company reported that its Q4 revenues were down 17% year-over-year (YoY) but it still had an adjusted operating margin of 16%. In addition, its adj. earnings per share were $1.31, up 8% YoY.
Moreover, the company said during the conference call it would maintain its annual dividend of $2.80 per share. Deb Thomas, the CFO, said this on the call:
“We have sufficient cash to operate our business, meet our capex needs, including investing for growth, and funding our dividend.”
That means that at $51.01 per share today, HAS stock has an attractive 5.49% dividend yield (i.e., $2.80/$51.01). This has apparently attracted a large investor who has likely taken advantage of this by both shorting and going long put options, as seen in the Barchart Unusual Stock Options Report today.
This Barchart report above shows that there were two tranches traded with the same volume and with the same expiration date, July 21. The first tranche was at $47.50 and the second at $42.50. It is likely that one or the other tranche was a long buy of the puts and the other was a short sale.
For example, given the long date of the expiration period, almost 4 months from now with 114 days to expiration (DTE), it is possible the first tranche at $47.50 was a long-put purchase costing $2.78 per put option. That means that the investor expects the stock to be below $44.72 by July 21, a decline of 12.3% from today's price of $51.01.
However, probably partly to reduce, not necessarily to hedge, the high cost of the trade, the investor has likely shorted the $42.50 put tranche, bringing in $1.45 per contract. That lowered the overall cost of the long-put trade to just $1.33. This trade means that the investor does not expect the stock to be below $42.50 by July 21. And even if it does the investor's break-even for that trade will be just $41.05 per share or $10 and 19.5% below today's price.
This is was is known as a net debit spread trade. It is also possible that the investor did the opposite and walked away with a net credit trade. If they shorted the $47.50 and received $2.78, and then bought the $42.50 put, the net credit would be $1.33. That means they don't expect the stock to fall below $46.17, or 9.5% below today's price.
Just in case it does the long put tranche protects the investor below $42.50. This also might make sense given the stock's high dividend yield.
In fact, it might even be a mixture of both trades. Either way, it looks like the investor is hedging their bet by going long and short the stock using put options. If the investor thinks there is going to be a large recession they will likely do the net debit trade. If they think the stock is undervalued and there won't be a major recession, they do the net credit trade.
On the date of publication, Mark R. Hake, CFA did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
