Options Bears Turn Up the Heat on Volatile Rite Aid

RAD puts are trading at an accelerated clip today

Jan 8, 2020 at 1:26 PM
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Rite Aid Corporation (NYSE:RAD) has had a volatile run on the charts, per the stock's 30-day historical volatility of 190.3% -- an annual high. More specifically, the shares surged off their December lows near $7.50 to top out at a 13-month high of $23.88 on Dec. 27, before crashing all the way down to $12.26 in yesterday's trading. RAD's January sell-off found support at its 20-day moving average, and this afternoon, the equity is up 8.5% at $13.60.

Options traders seem unconvinced RAD can continue higher over the long term. More than 7,800 puts have changed hands today, 1.6 times what's typically seen at this point. The April 12 put is most active, and it looks like new positions are being purchased here for a volume-weighted average price of $2.25. If this is the case, breakeven for the put buyers at the close on Friday, April 17 -- when the options expire -- is $9.75 (strike less premium paid).

What's notable is that the lifetime of these April options possibly encompass Rite Aid's next earnings event, tentatively scheduled for April 8, per Trade-Alert. The shares' December surge was sparked by a positive reaction to the drugstore chain's third-quarter results, which marked a third consecutive post-earnings wind for RAD.

Sentiment outside of the options pits remains decidedly skeptical, too. While all three covering analysts maintain a "hold" or "strong sell" rating on Rite Aid stock, the average 12-month price target of $7.70 is a major discount to current trading levels. Elsewhere on Wall Street, 27% of the equity's float is controlled by short sellers.

rad stock daily price chart on jan 8

 

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