Kodak shares have surged a whopping 1,600% this week after the company secured a $765 million government-backed loan to manufacture pharmaceutical ingredients, and as the stock price continues to soar, so does the options activity.
The former film giant, which averages just about 7,000 options contracts per day, traded more than 100,000 contracts on Tuesday, and followed up that print with a stunning 300,000 on Wednesday. But a snapshot of the action shows that sentiment is far from bullish.
“What really stuck out to me was taking a look at the August 2.5-strike put. Mind you, this stock touched $60 [Wednesday] and closed around $30. The 2.5-strike puts traded 100,000 times around 10 cents,” Bonawyn Eison, managing director at XP Investments, said Wednesday on CNBC’s “Fast Money.”
These contracts seem to trade as one large block, meaning the buyer paid out about $1 million in premium. However, they may not be playing for a drop all the way to the trade’s break-even price of $2.40 per share.
“Now to me, this isn’t really about the implied move or any of that. This is someone, the buyer at least, betting that this is not going to end well for Kodak,” Eison said. “Being that it’s a short-dated option, you pay 10 cents for it, and hopefully if there’s a violent move — I believe we saw a move from [about $44] to about $33 going into the latter half of the [Wednesday] trading session — really, this is an opportunity for you to take advantage of some cheap options, spend about $1 million in premium, and then sell those at a profit.”
Of course, in order to be able to sell those contracts at a profit, Kodak’s stock price would have to drop precipitously before they expire on Aug. 21.
Kodak was 9% higher in Thursday’s session.