It’s been a rocky start for Uber Technologies Inc. (UBER). The company only came public in May, and after climbing to around $47 in July, shares have fallen by more than 32% to roughly $31.50 by November 1. But all may not be lost.
Some options traders are betting that the stock rebounds and climbs more than 15% by the middle of January. Additionally, the technical chart suggests that the stock is poised to rise too. The company is scheduled to report third quarter results on November 4 after the close of trading.
Traders Are Betting On A Big Jump
On November 1 the open interest for the $34 call options due to expire on January 17 rose by roughly 14,100 contracts. The total open interest for those call options now stands at about 20,000 open contracts. For a buyer of the calls to earn a profit the stock would need to rise to a price of around $36.15, based on the price of the contracts on November 1, a gain of more than 15% from the stock’s price of approximately $31.25 on November 1
It is not a small wager either. The value of the open $34 calls is worth more than $4.2 million. Should the stock not rise above the strike price by the expiration date the trader stands to lose their entire outlay on the options.
Technicals Turn Bullish
The technical chart is also pointing to higher prices for Uber. The stock hit a low on October 2 at a price of roughly $28.30. The shares then retested that region on October 10, falling to a low of around $28.50, which may have created a bullish reversal pattern known as a double bottom. The stock has been trending higher since that time.
Another bullish indicatation comes from the relative strength index (RSI) which hit oversold levels below 30 in early September. The RSI has been trending higher since that time, despite making new lows in early October. That is known as a bullish divergence, which also suggests that momentum has turned positive, and that shares are likely to rise.
Analysts See The Company Losing Money
Analysts are not expecting Uber to post strong results when they report on November 4. Estimates show that the company lost $0.54 per share in the third quarter, while revenue is forecast at $3.7 billion.
The stock fell sharply following disappointing second-quarter results in August. That was when the company reported a loss of $4.72 per share which was wider than estimates for a loss of $3.19 per share. Additionally, revenue came in at $3.17 billion, which was worse than estimates for $3.36 billion.
Should the company report weaker than expected results again, and shares break technical support at $30.50, the stock is likely to retest its October lows at approximately $28.35, based on the chart, a decline of almost 10%. However, if the company can shock investors and post better than expected results then there stands a good chance the bullish bets pay off in a big way.
Michael Kramer is a financial market strategist and the portfolio manager of the Mott Capital Thematic Growth Portfolio.
Mott Capital Management, LLC is a registered investment adviser. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Past performance is not indicative of future results.