Ride-sharing company Lyft (LYFT) soared 35 percent on Wednesday after the company reported a major earnings beat. One trader is betting that shares will pull back from that extreme move in the coming months.
That’s based on the April $16 puts. With 62 days until expiration, 24,164 contracts traded compared to a prior open interest of 356, for a 68-fold rise in volume on the trade. The buyer of the puts paid $1.40 to make the bullish bet.
Lyft shares recently traded just over $16, making this an at-the-money trade. Shares also hit a new 52-week high of $16.77 on the news.
The company managed to earn 19 cents per share in the most recent quarter, more than double of estimates for 8 cents per share.
Lyft has now beaten earnings expectations in each of the last four quarters. Shares trade at about 30 times earnings.
Action to take: The massive one-day jump following earnings may have been the result of short-sellers covering their position. It’s likely that shares will give up some of their recent gains in the coming weeks.
Interested investors should wait for a pullback.
For traders, the April $16 puts look like a reasonable downside option play here.
The trade is likely to move in-the-money, and from here the trade could see mid-double-digit gains or better in the next few days. Traders may want to take profits before expiration.
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 company mentioned in this article.