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.
![Uber (UBER) chart, with 50-day moving average and ascending triangle.](https://www.tradestation.com/insights/wp-content/uploads/sites/2/2020/01/UBER_20200121-1024x503.jpg)
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.
![Lyft (LYFT) chart, with 50-day moving average.](https://www.tradestation.com/insights/wp-content/uploads/sites/2/2020/01/lyft_20200121-1024x545.jpg)
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.