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Options Market Turns Sour on Senior Housing REIT: Welltower Inc Stock (NYSE: WELL)

Options Market Turns Sour on Senior Housing REIT: Welltower Inc Stock (NYSE: WELL)

One of the biggest stories to come out of the COVID-19 pandemic is the number of elderly patients in senior housing that have died. According to the New York Times database, 42% of all COVID deaths have been patients in a nursing homes and other long-term care facilities. That number seems even more dramatic when you see that they only represent 8% of the total number of COVID cases. Welltower Inc (NYSE: WELL) is a healthcare REIT that is approaching earnings next week that has the options market getting bearish.

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  • Specifically, WELL is a REIT that invests in infrastructure for leading senior housing operators, post-acute providers and health systems. It’s investments are centered on major, high-growth areas of the U.S., Canada and the U.K. While the implications of the COVID death numbers may not be immediately impactful, it does raise concerns about specific protections for this high-risk group that may increase the costs to operate.

    The price had broken out of a falling wedge on July 22 on above average volume. The price has fallen back over the past few trading sessions on declining volume. While the price is setting up for a continuation of the trend, the looming earnings report certainly creates some risk of a miss or reduction in earnings guidance. The company currently pay a 4.78% yield as well.

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    The option market appears to be disagreeing with the breakout last week and is looking to get more bearish ahead of the report. The put option volume was over four times the average and 48% of the volume being filled at the ask price. The call option volume was average but 72% of the activity occurred at the bid price, which is a bearish indication.

    One large trade that was filled at the ask price in one print was a 2,500-contract trade on the 21 AUG 20 $50 put option. The $737,500 trade that was made is a significant trade based on an expected down-move or could be a hedge against a large long stock position. Either way, it’s a bearish indication for the price leading into the earnings. The breakeven of the option trade and the expected move based on the option implied volatility suggest a move toward $45 by the August expiration.

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  • Option traders may want to consider buying a 21 AUG 20 52.50/50 long put vertical for around $1.25.