Market Insights

Uber Technologies has been steadily trending higher, and options traders seem to think the move will continue.

Two large transactions appeared in the ride-sharing stock yesterday. Both were bullish, although one involved significant risk and the other was conservative.

First, the riskier trade:

• 11,000 August 42.50 calls were sold for $5.60.
• 11,000 August 35 puts were bought for $0.11.
• 11,000 September 50 calls were bought for $2.22.
• 11,000 September 42.50 puts were sold for $1.23.

Volume was below open interest in the August contracts but not the Septembers. That suggests a bullish combination trade was rolled from one month to the next. Here’s how it might work:

Calls fix the level where investors can purchase a security. They typically gain value when shares rise. Puts lock in the selling price, so they can appreciate to the downside. This strategy sells puts (which can be highly risky for retail investors) and uses the cash received to buy calls.

If the stock rises, the puts sold short will lose value and the calls will gain. That seems to have already happened in this case, which is why they exited a profitable position in August and moved to September. Making the adjustment let them collect a net $4.50 per share, while keeping them exposed to further upside.

Covered Call

Here’s the more conservative trade:

• 20,612 July 32.50 calls were bought for $15.15.
• 20,612 January 32.50 calls were sold for $16.71.

Volume was below open interest in the July contracts but above open interest in the Januarys. That suggests an investor owns roughly 2 million UBER shares and had previously sold the July 32.50s as part of covered call strategy. He or she collected a net credit of $1.56, which they’ll keep as long as the stock remains above $32.50. It can drop more than 30 percent without them enduring a loss, thanks to the covered call strategy. The investor has relinquished any further gains to the upside in return for that safety.

UBER fell 0.63 percent to $47.11 yesterday, but is up 48 percent in the last three months. It’s been rallying since earnings, revenue and guidance surprised to the upside on May 2. The next results are due before the opening bell on August 1.

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