Trade Ideas February 11, 2020

LYFT Q4 Earnings Preview / Trade Ideas

by Dan

LYFT will report its Q4 results today after the close. The options market is implying about a 10% one-day move tomato, which is rick to the 7% average the stock has moved the day after its first three earnings since its March 2019 IPO.  With the stock just below $54, the Feb 14th weekly straddle (the 54 call premium + the 54 strike put premium) is offered at $5, if you bought that, and thus the implied earnings movement you would need a decline below $49 or a rise above $59 by Friday’s close to make money.

Shares of LYFT are already up 25% on the year, up 45% from its all-time lows made in October, but still down about 26% from its $72 IPO price.

Yesterday’s breakout above $50 for LYFT was technically important as it puts it at 5 months highs and above its 200-day moving average:

 

The stock got an LYFT in the past few days since Thursday night when competitor UBER tightened up its guidance to be EBITDA positive, nearly a year ahead of previously guided. Investors have taken this to mean a renewed focus on ride pricing rationalization for the whole industry (basically the two of them).

So what’s the trade?

If I were inclined to play for a continuation of the breakout and possibly a run at its IPO price of $72 by next earnings, I might consider a call spread in April, which will not catch the earnings but could catch a run-up into it.

Bullish Trade Idea: LYFT($54) Buy April 55 – 70 call spread for $3.30

-Buy to open 1 Apr 55 call for $3.90

-Sell to open 1 April 70 call at 60 cents

Break-even on April expiration:

Profits of up to $11.70 between $58.3 and 70 with max gain of 11.70 or 21% if the stock is 70 or higher, up 30%. The options market suggests there is a 38% chance this trade is break-even on April expiration and only a 12% probability that it is at its max value on April expiration.

 

Or If I were skeptical after the stock’s YTD run, and think the stock’s recent strength might discount a mere reiteration of existing guidance with possibly other disappointing metrics, I might consider the following defined risk bearish trade idea.

Bearish Trade Idea: LYFT ($54) Buy March 52.50 – 42.50 put spread for $2.50

-Buy to open 1 March 52.50 put for $2.85

-Sell to open 1 March 42.50 put at 35 cents

Break-even on March expiration:

Profits of up to 7.50 between 50 and 42.50 with max gain of 7.50 below 42.50

Losses of up to 2.50 between 52.50 and 50 with max loss of 2.50 above 52.50.

Rationale: this trade idea risks 4.6% of the stock price, has a break-even down 7.4% and offers a max profit of 14% if the stock is down 21% in 5 weeks. The options market is suggesting there is about a 30% probability this trade idea is break-even on March expiration, and only about a 10% chance it is worth its full value.

Don't miss out!
Be notified of new episodes as they are released
Invalid email address