Avis Budget Stock, Options Volume Skyrocket on Waymo News – Schaeffers Research (blog)

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The shares of Avis Budget Group Inc. (NASDAQ:CAR) are 10% higher at $26.50, as traders celebrate a partnership with Google parent Alphabet Inc’s (NASDAQ:GOOGL) self-driving car unit, Waymo. Specifically, Avis will manage and provide maintenance services for Alphabet’s fleet of autonomous vehicles. Against this backdrop, CAR options are flying off the shelves at a rapid-fire rate, with call volume and overall Avis stock volume set for an annual high.

Specifically, nearly 11 million Avis shares have changed hands already — set to topple the Sept. 16 high, when more than 20 million CAR shares crossed the tape. In the options pits, about 9,200 CAR calls have traded — 14 times the normal intraday pace, and set to easily top the Sept. 16 high of fewer than 11,000 calls. CAR put options are also accelerated, with about 6,400 contracts traded so far — eight times the norm, and set for the 99th percentile of its annual range.

The out-of-the-money August 32 call is most popular, with close to 2,200 contracts traded. However, it looks like much of that volume may be attributable to a block of calls that was sold to open. If so, the speculator is expecting CAR stock to remain beneath the $32 level through August options expiration. Avis stock has topped $32 on a daily closing basis just once since mid-March. It looks like more “vanilla” traders are buying to open calls at the July 26 and July 30 calls, betting on more short-term upside for CAR stock.

Meanwhile, one trader apparently bought to open a block of 1,001 August 28 puts for about $3.87 apiece, or about $387,000 total (number of contracts x premium paid x 100 shares per contract). The puts will become profitable if CAR shares sink back beneath $24.13 (strike minus premium paid) within the options’ lifetime. If they continue today’s upward momentum, the most the trader can lose is the initial premium paid for the Avis puts.

Avis Budget is no stranger to skepticism, though. CAR stock sports a Schaeffer’s put/call open interest ratio (SOIR) of 2.90, indicating that puts nearly triple calls among options expiring within three months. This ratio registers in the 91st percentile of its annual range, suggesting near-term Avis options traders have rarely been more put-biased during the past year. Plus, short interest accounts for a whopping 51% of the stock’s total available float, representing nearly two weeks’ worth of pent-up buying demand, at CAR’s average daily trading volume. 

It’s not hard to see why Wall Street has growing wary of Avis Budget Group, though. Since peaking in early December, CAR shares have been in a channel of lower highs and lows, touching a four-year low of $20.71 on June 9. Today, however, CAR stock could topple its 50-day moving average for the first time in nearly two months — a trendline move that’s been a decent “buy” signal in the past.

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