Shares of automotive dealership Vroom Inc (VRM) have been in a steady decline over the past year, as a parts shortage has made new vehicle production costly and led to a shortage of used vehicles. However, one trader sees room for a rebound ahead.
That’s based on the January 2023 $20 calls. With 408 days until expiration, over 15,095 contacts traded against a prior open interest of 202, for a 75-fold jump in volume.
The buyer of the calls paid $2.95 to make the trade.
With shares last around $13.50, a move to $20 would require a $6.50 rally in shares, or a 48 percent rise higher in the next 13 months. With a 52-week high of $53 per share, that wouldn’t be anywhere near to a recovery in the share price.
The stock is down 63 percent over the past year, as the company has been reporting losses as well. The only good news right now is that revenue is on the rise again, likely due to robust sales prices for cars.
Action to take: It’s possible that the automotive market could start to normalize in the mid-to-late half of 2022. That could help the company get back to a more consistent profitability and send shares back higher. At present, the stock does not currently pay a dividend.
For traders, the January 2023 calls look attractive, given their long timeframe to play out and relatively low cost per contract. On a major rally in shares, the option could handily deliver triple-digit gains.
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.