Today after the close UBER will report its Q2 results. The options market is implying a $2.90 move tomorrow in either direction or about 8.5%. With the stock near $34.50, the Aug 7th weekly 34.50 straddle (the call premium + the put premium) is offered at $2.90, if you bought that, and thus the implied one-day movement you would need a rally above $37.40, to a decline below $31.60 to make money.
Shares of UBER are up 150% from its March lows, and up about 16% on the year, all of which have come this week:
The stock bounced off od near term support at $30 on Monday and is now quickly approaching near-term technical resistance near $35:
Despite the obvious headwinds to the company’s rideshare business, Wall Street analysts remain fairly optimistic on the stock with 34 Buy ratings, only 5 Holds and 1 Sell with an average 12-month price target of about $41, or about 20% higher than where the stock is currently trading. One of the reasons for analysts and investors to remain optimistic on UBER given the lack of visibility as to how quickly their Rides business will rebound (expected to be down 75% in Q2) is their food delivery business which is expected to be up 100% in gross merchandise value (gmv) in the quarter, a quarter where they agreed to buy a large competitor in the U.S., Postmates. Despite it being a positive that they are consolidating market share hoping for less promotion, margins in this space will remain very thin.
So what’s the trade? a few ways to play…
This week’s rally in the stock likely discounts a mildly better quarter and guidance. If you think the company will disappoint, targeting a decline of 10-15% back towards $30 makes sense. The Aug 7th 34 – 30 put spread with the stock at $34.45 costs about $1.05, with a break-even at 32.95 (down 4.4%) with gains of up to $2.95 between $32.95 and $30 with a max gain of $2.95 if the stock is $30 (down 13%) or lower on tomorrow’s close. Down 13% would take a pretty heft miss, reversing most of this week’s gains. This trade is quite binary though, if you get the direction wrong it will be a near-total loser on tomorrow’s open, risking 3% of the stock price to possibly make up to 8.5% of the stock price if it is down 13% in one day.
Altnetiavely you could allow for more time and look to Aug 21st expiration and widen the spread out a little to the 34 – 29 put spread that costs about $1.50. The Aug 21st 34 – 29 put spread breaks even down at $32.50 and has gains of up to $3.50 between $32.50 and $29 with a max gain of $3.50 at $29 or lower. Risking $1.50 to possibly make up to $3.50, or 3x the premium at risk.
On the flip-side a strong beat and raise and the stock is breaking out above $35 on its way back to its Feb break-down near $40: WIth the stock near $34.40 the Aug 21st 35 – 40 call spread costs about $1.30 with a break-even at $36.30 with gains of up to $3.70 between $36.30 and $40 with a max potential gain of $3.70 at $40 or higher. This trade idea risk 3.8% of the stock price, breaks-even up 5.6% and has gains of up to 11% of the stock price if it is up 16.5% in two weeks.