Lowe’s Options (PG): Unusual Trading Activity
Options in home-improvement company Lowe’s (LOW) are showing quite a bit of activity today.
Despite all three major indices trading down today, Lowe’s is having an even tougher day.
While the S&P 500 is currently posting a 1.3% decline, Lowe’s is down over 1.6% to $26.85.
Investor sentiment turned negative on May 3rd, right before Lowe’s cut their full year profit guidance. Since then, Lowe’s has seen a 14% decline.
Now, it’s obvious that traders and investors alike are still nervous about a potential global economic slowdown.
And this morning, one trader bet a small house on it!
During mid-morning trading, this trader stepped in and purchased 2,500 put contracts at an average price of $0.46 a piece.
He’s obviously seeing LOW’s chart breaking down. So, he’s probably worried the stock’s on the verge of collapsing even further.
By spending a hefty $115,000 on puts, this option trader clearly believes LOW is heading lower over the next several weeks.
And as you know, purchasing put options without an offsetting trade offers unlimited upside potential. If this trader’s right, he stands to make a serious amount of money.
So, what about this company?
If you don’t already know, Lowe’s is the second largest home-improvement retailer in the world. They operate an impressive 1,747 stores throughout the US, Canada, and Mexico.
Lowe’s offers products and services for home decorating, maintenance, repair, and remodeling. And they target retail do-it-yourself, retail do-it-for-me, and commercial business customers.
But, the question remains, what’s going on with this usually strong name?
First, with the domestic store base maturing, the pace of new store openings has slowed dramatically. And slower new store growth may be beginning to drive increased competitive pricing pressures between Lowe’s and top competitor, Home Depot (HD).
In my opinion, Home Depot will come out the winner of this head-to-head competition.
In addition, weak consumer spending, coupled with the inability to tap home equity lines of credit, could delay many retail home-improvement projects. And that obviously hurts Lowe’s future sales.
Lastly, Home Depot has greater profit margin upside. As they restructure and complete the supply chain, HD could really pressure LOW’s returns. Especially since Lowe’s has no such restructuring plan in progress.
And while this will probably be good for the average consumer, it’s not going to bode well for LOW.
This happens to still be a good company in my book over the longer term, however, for the short term, option traders obviously disagree!
What do you think?
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Safe Trading,
Marcus Haber
Category: Unusual Options Trading Activity
