Ride share service Uber Technologies (UBER) has had a strong rally, with shares up 68 percent over the past year. One trader is betting that the rally has stalled out.
That’s based on the December 15 $40 puts. With 205 days until expiration, 3,004 contracts traded compared to a prior open interest of 107, for a 28-fold rise in volume on the trade. The buyer of the puts paid $4.80 to make the bearish bet.
Shares recently traded just over $39, so this is an at-the-money trade. Shares recently popped higher after earnings, hitting a 52-week high of $39.49.
Overall, Uber has lost money over the past year. But the company’s cash flow has improved, thanks to a 29 percent rise in revenues.
Action to take: Uber is the industry leader for ride-sharing services. But shares have moved farther than the company’s rally in price over the past year, making the stock due for a pullback of some sort in the months ahead. Patient long-term investors should wait for a drop to the low-$30 range before buying.
For traders, the December puts are reasonably priced to deliver mid-double-digit returns in the months ahead. A pullback may occur from Uber shares being overvalued and having run up too fast, or from a market decline.
Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any of the companies mentioned in this article.