Shares of Waste Management, Inc. (NYSE: WM) are down 3.1% in the past week after the company reported disappointing third-quarter revenue in late October.
The good news for Waste Management investors is that the stock remains up 24.7% overall in the past year. Unfortunately, at least one large option trader is making a bearish bet on more downside ahead.
On Tuesday morning, Benzinga Pro subscribers received three option alerts related to unusually large Waste Management trades.
Between 10:18 a.m. and 10:22 a.m., likely a single trader bought 1,994 Waste Management put options with a $105 strike price expiring on Nov. 15 near ask prices ranging from 39.8 cents to 45.1 cents. The three trades represented a combined bearish bet of more than $80,000.
Why It's Important
Even traders who stick exclusively to stocks often monitor option market activity closely for unusually large trades. Given the relative complexity of the options market, large options traders are typically considered to be more sophisticated than the average stock trader.
Many of these large options traders are wealthy individuals or institutions who may have unique information or theses related to the underlying stock.
Unfortunately, stock traders often use the options market to hedge against their larger stock positions, and there’s no surefire way to determine if an options trade is a standalone position or a hedge. In this case, given the relatively modest size of Tuesday’s Waste Management option trades by institutional standards, it’s unlikely to be institutional hedging.
Continuation Of Bearish Trend?
The only major fundamental news from Waste Management this year other than its quarterly reports is its pending $4.9 billion buyout of Advanced Disposal Services (NYSE: ADSW). Advanced's stock is trading less than 1% below its buyout price of $33.15 per share, so the market doesn’t seem to see any potential snags ahead to keep the deal from closing.
The large bearish put buyer on Tuesday may simply be betting that Waste Management doesn’t have any near-term catalysts ahead to break out of its bearish trend that has had the stock drifting steadily lower since early September. In addition, given the 4.1% rise in the S&P 500 as a whole in the past month, the option trader may simply be predicting Waste Management will lag if a near-term market pullback is imminent.
The strike prices of the puts purchased on Tuesday suggest more than 3.5% additional downside for Waste Management within the next 10 days given their break-even prices are below $104.60.
Long-term Waste Management investors should take the put buying with a grain of salt given the expiration dates are less than two weeks away. The trader seems to be making a near-term momentum trade rather than a long-term bet on downside for the stock.
Investors should keep an eye out for potential longer-dated Waste Management option trades in the days ahead, particularly if current option holders roll over their positions as the November 15 expiration date approaches.
The stock traded around $108.36 per share at time of publication.
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