Ride-sharing stocks like Uber and Lyft struggled after IPOs last year. Yesterday, the bulls seemed to think both have turned a corner.
UBER shot to a five-month high after Morgan Stanley said core profitability was improving and management shed a money-losing Indian subsidiary. The company’s earnings are due February 6.
UBER rallied 7 percent, breaking the top of an ascending triangle. It’s the latest of several companies to rebound after initial public offerings (IPOs) in 2019. Others include Pinterest (PINS), Peloton (PTON) and LYFT.
Speaking of LYFT, the smaller version of UBER bounced after Cascend Securities cited increased downloads of its app. The company also had a flurry of unusual options activity.
Lyft’s Busy Options Activity
First, a trader sold a block of 10,000 31-January 43 puts for $0.04. Volume was below open interest, which suggests he or she closed an existing position.
At the same time, a matching number of 31-January 46 puts were bought for $0.38. Turnover in those exceeded open interest, which suggests a new position was established.
Given the timing, it looks like the investor was holding the 43s as protection on 1 million LYFT shares. With the stock rallying, they unloaded those and rolled up to the 46s. Making the adjustment cost an incremental $0.34 but raised their hedging level by $3.
Another roll occurred a few minutes later in the short-term calls:
- 5,000 31-January 47 calls were bought for $2.36.
- 5,000 7-February 48 calls were sold for $2.25.
- Volume was below open interest in the 47s but not the 48s.
Translation? It looks like someone rolled up a covered call on 500,000 shares. He or she paid a net $0.11. In return they raised their potential exit price by $1 and extended their position an additional week into the future.
The options trades in LYFT seem to reflect cautious optimism by large investors hedging with options. The stock, which reports earnings on February 11, rose 3.14 percent to $47.98.
In conclusion UBER and LYFT mostly disappointed investors since going public in 2019. But now they’re back above their 50-day moving averages, a potential sign of more bullish sentiment as earnings approach.