Why Rent When You Can Short RCII?

Rent-A-Center RCII – NASDAQ

Tuesday, January 10, 2017

Among companies with out-of-date business models, Rent-A-Center RCII – NASDAQ makes our list. RCII is down 71% over the past two years, perhaps because more innovative competitors are squeezing its margins. Now a sharp trader is betting it will sink even lower, and bought 6,000 RCII February 10 puts earlier today.

RCII

What’s most unusual about this trade is its relative size. RCII trades just 584 put options per day on average, making this single order greater than 10 times the normal volume. At $0.85 per contract, $540,000 worth of options premium was spent, and given a break-even price at expiration of $9.10, RCII has to lose 16.1% to turn a profit. That’s a big ask in less than two months, and has us thinking this trade is banking on a disappointing earnings announcement come January 30. Below $9.10, $600,000 gets pocketed for every $1 RCII drops.

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