Put Options Bought on Rent-A-Center (NASDAQ: RCII), Again

No love for Rent-A-Center Inc (NASDAQ: RCII), as we saw an onslaught of puts bought again today, and the stock dropped nearly 3%. Now, on Friday, March 31, 2017, we saw over 9K May 7.5 puts bought in RCII when the stock was trading between $9.20 to $9.40.

Rent-A-Center is a rent-to-own operator in North America. The company also offers durable products, such as consumer electronics, appliances, computers, smartphones, and furniture, under flexible rental purchase agreements with no long-term obligation.

RCII Put Option Activity

Instead of seeing some profit taking, put buyers were back in force today. This time, we saw over 4K May 7.5 puts trade, these options were bought on the ask side for $0.53. So instead of locking monster profits in less than a week, we saw option players come in and buy the same options for price that was more than 60% richer.

At the open of the day, there were 8,774 contracts on those May 7.5 puts. More than 6K of those same strike puts traded, today. It will be interesting to see how much profit taking was done and what the open interest will look like tomorrow morning.

As you can see, you don’t have to wait till expiration to get out of an options contract. And you don’t have to see the stock drop to or below the strike price to profit. However, if the option traders were to hypothetically hold the position till expiration, they would need to see the stock price drop nearly 20% just to break even on the expiration date.

With that said, today’s activity in Rent-A-Center consisted of 3.3 times the average options volume we see in the name. According to FinViz, 38% of the float is short the stock.

What You Need to Know About RCII

  • Some traders purchased put options on RCII, and they would need to see the stock fall nearly 20% to break even.
  • RCII is expected to report its earnings between April 25 to May 1, 2017, according to Yahoo Finance.
  • RCII has a price-to-book ratio of 1.8, and a trailing 12-month price-to-sales ratio of 0.2.
  • Rent-A-Center has a debt-to-equity ratio of 2.7.
  • Rent-A-Center has a 52-week high of $15.94 and a 52-week low of $7.76.
  • RCII is down 1.32% over the past seven days, and over 20% over the past 3 months.
  • Rent-A-Center has a forward PE ratio of 8.79.

RCII

Source: TradingView

Bull Case

RCII shares have been down 21.13% over the past three months, and some traders may be playing for a bounce. Additionally, the stock has some valuation ratios that suggest that it may be undervalued. The stock has a price-to-book ratio of 1.8, which is below the industry average of 2.0. Moreover, it has a trailing 12-month price-to-sales ratio of 0.2, while the industry average is 0.90. Rent-A-Center also has a debt-to-equity ratio of 2.7, which is, again, below the industry average of 3.3

Bear Case

There was some put option activity in RCII, according to Finviz, there is a 38% short ratio. Now, traders may be bearish on the name due to over 20% drop over the past three months, which would be considered a momentum play.

The Bottom Line

RCII shares were down nearly 3% today, and there was interesting put option activity on the stock. Again, over 9K May 7.5 puts bought, and we’ll look to see. However, there are some motivations for both bullish and bearish bets on RCII.

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