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Lyft options may soon get a whole lot cheaper—here's how

Here's what options traders are betting on for Lyft
Here's what options traders are betting on for Lyft

Sharing rides, sharing wealth?

Lyft shares were on the rise Tuesday morning after the ride-hailing company's share lockup expired one month early, a move done to allow insiders to trade the stock before the company's quiet period ahead of its next earnings report.

The stock climbed more than 3% in early trading, a sign that investors were still confident in the stock's trajectory despite its 26% decline since its initial public offering on March 29.

That confidence was also reflected in the options market, where traders began to rethink their strategy, said Dan Nathan, co-founder and editor of RiskReversal.com.

On Monday, the most active options trade was a purchase of $50 put options expiring on Aug. 23, a bet that Lyft shares could bottom at the $50 level by Friday.

"It might have been long holders who had bought some short-dated puts for fear that the stock could break down and make a new low here," Nathan explained Monday on CNBC's "Options Action." "That's giving some confidence ... that some holders are thinking that, with the stock's stability today — only down 1.5% on big volume — that it might be putting in a near-term bottom."

And, with Lyft down 12% since its successful Aug. 7 earnings report, Nathan sees limited downside ahead.

"It looks like [$]50 on that chart is a good level," he said, pointing to a chart of Lyft's implied volatility, or the price of its options over time, which appears to be softening. "Options in Lyft might get a whole heck of a lot cheaper, especially if it could find some support in this $50 level."

Wall Street analysts were pleasantly surprised by investors' reactions to Lyft's lockup expiration, encouraged by the fact that shareholders didn't jump at the chance to sell.

That told Seymour Asset Management's Tim Seymour that Lyft investors have more faith in the company's story than people think.

"If you're buying this company today ... I don't think you're buying it for a trade. I think you are truly going to be an investor," Seymour, his firm's founder and chief investment officer, said in the same "Options Action" segment.

For Nathan, that goes back to Lyft's Aug. 7 earnings report, which beat expectations across the board.

"There was a lot of stuff in there that gave investors confidence that the story, as a pure play on ride-share in the United States, is kind of working, and they're a bit more focused than their friends over at Uber, who have to think about what does geographic competition look like, what does it look like as they do delivery, as they do a whole host of other things," he said. "So, to me, I think this story is starting to shape up once you get this lockup, the concern about it, out of the way."