After Stanley Black & Decker shares plunge, some traders bet on more pain

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Options traders see more pain ahead after Stanley Black & Decker's weak guidance

Shares of Stanley Black & Decker were recovering slightly Wednesday after they fell off a cliff Tuesday following a weak fourth-quarter earnings report that cast a grim shadow over the company's 2019 outlook.

Tuesday's move canceled out most of the stock's 20 percent bounce off its December lows, and options traders are betting that SWK's bearish outlook means much more pain is on the horizon for the industrial products company before things start to get any better.

"What we did see was the purchase of 1,000 February 115/105-put spreads, buying the 115-puts and selling the 105s against it, for $2.60," Mike Khouw of Optimize Advisors said Tuesday on CNBC's "Fast Money. " "So it has to go beneath that $115-strike price by at least the $2.60 that they paid."

But the buyer of these spreads doesn't see the bleeding stopping there.

"They're obviously targeting that $105-strike, which would represent a decline of another 10-plus percent from where it was [Tuesday]," noted Khouw.

That bearish sentiment could be based partially on broader concerns in the housing space beyond SWK's woes. The homebuilders ETF XHB has underperformed the broader S&P 500 over the last year, and even though some of the headwinds that dogged the housing market in 2018 – rising interest rates and materials costs chief among them -- have quieted, there are still plenty of hurdles to overcome.

"This housing starts number missed badly. It was the lowest number since November 2018," observed Tim Seymour, chief investment officer at Seymour Asset Management, Tuesday on "Fast Money." "Prices are actually down, which should aid affordability, but that's the other problem: they're still not affordable and there's not enough housing stock."

The homebuilders ETF has lost about 26 percent of its value over the last year.