From its early-February top to the middle of September, Uber (UBER) fell roughly 40%. Wall Street was down on the stock and the company. Then, two weeks ago, UBER all of a sudden came alive when the company unexpectedly raised guidance. I should clarify that: This news was not unexpected news to readers of my Cabot Options Trader advisory. This is what I mean …
On August 31 I wrote the following to my Cabot Options Trader subscribers:
“Uber (UBER) and Lyft (LYFT) have been in the doghouse for months in the minds of investors. However, in the last month UBER options activity has been transitioning from mixed to bullish in both of these stocks, including these trades today, which are targeting a longer-term turnaround:
“Buyer of 5,700 Uber (UBER) January 40 Calls (exp. 2023) for $7.80 – Stock at 39.5
“Buyer of 1,000 Lyft (LYFT) January 50 Calls (exp. 2023) for $10.20 – Stock at 47.7
“The idea of buying calls in these stocks expiring in 2023, and throwing them ‘in your back pocket’ is intriguing as a longer-term turnaround play. I will continue to watch both UBER and LYFT for further call buying, or any signs of stock strength.”
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My UBER Options Trade Suggestion
A couple days later, as call buying EXPLODED in UBER, Cabot Options Traders jumped into a position in June calls looking for the stock to move higher. Here is what I wrote:
“Buy the Uber (UBER) June 42.5 Calls (exp. 6/17/2022) for $6.50 or less.
“Ever since I wrote about Uber stock on Tuesday, option activity has been overwhelmingly bullish, targeting the January 2023 calls from that day, and more recently calls expiring in nearly every single expiration cycle.
“Because of this option activity, and the stock finally showing some signs of life (kind of), I am going to add a call expiring in June of next year.
“To execute this trade you need to: Buy to Open the UBER June 42.5 Call.
“The most you can lose on this trade is the premium paid, or $650 per call purchased.”
While UBER stock fell in the days after we bought our call position, the hedge funds and institutions who were buying calls never gave up on UBER, and in fact continued to ramp up this wild call buying frenzy.
Not surprisingly, given the conviction in this upside call buying, on September 21 Uber raised its outlook for the third quarter, and the CEO noted U.S. volumes were the best since March.
In reaction to this news UBER stock ran from 38.5 to a high of 47 earlier this week (it has since dipped back to the 44-45 range).
This call buying, and the news that followed, sparked outrage from one Cabot Options Trader subscriber who declared it “another case of hedge funds cheating!!!”
My response was multi-layered.
First off, I really don’t care if they cheat and steal as long as they leave the bread crumbs in the options market for me to follow.
Second, yes, it’s possible that there was insider trading in this case.
Or, perhaps these hedge funds have the ability to track Uber’s ridership activity, Uber Eats’ food delivery numbers, etc., and simply used this data to make a calculated bet that buying calls was a good risk/reward opportunity.
Regardless, I think that UBER is on its way to a big fourth quarter as the stock is under-owned by hedge funds and institutions who had thrown in the towel on this stock. More importantly, call buyers continue to purchase upside calls looking for more gains in the months to come.
Do you have UBER stock in your portfolio? When did you buy it and how have you done so far?
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