Since Smile Direct Club's IPO on Sept. 12, its stock is down more than 50%. And even though all 10 of its underwriters have since initiated coverage of the stock with a "buy" rating, it has fallen nearly 30% this week.
But as Optimize Advisors President Michael Khouw explained Thursday on "Fast Money," traders in the options market are predicting the company will soon have something to smile about.
"We saw eight times the average daily call volume today," said Khouw. "Most of that activity was concentrated in the Nov. 10 calls. About 13,000 of those traded for just under $1.75."
Given that the average analyst price target is $21.78, a bet on the stock rallying back above $11.73 — or about 18% — over the next five weeks isn't out of the realm of possibility, especially since the stock has moved so far so quickly.
"When you consider that this stock was over $13.50 two days ago, and it was over $14.70 three days ago, you begin to understand why, in these 'catch the falling knife' situations," said Khouw, "it can be wiser to use options, limit your risk, and still get some participation to the upside."
Smile Direct Club was trading 9% higher in Friday's session.