One of 2019's top tech IPOs is already off to the races in 2020.
Zoom Video is up more than 50% already this year, and has risen nearly 200% since it hit the market last April. It's fair to ask whether the stock has run too far, too fast, but options traders are answering with a resounding "no."
"The options trade fairly actively, nearly 15,000 contracts per day are traded. Today, we saw about four times that — 63,000 contracts," Tony Zhang, chief strategist at Optionsplay, said Tuesday on "Fast Money."
Many of those contracts looked to be targeting Zoom's next earnings report, which is scheduled to cross the wire after the bell on March 4. Between then and weekly contract expiry on March 6, the options market is implying a move of about 13% in either direction. As Zhang pointed out, that's just about right in line with the 12% post-earnings move that the videoconferencing stock has averaged over the last three quarters.
"The trade that we saw cross the tape earlier today was 786 contracts of the March 6 weekly 105-call options," Zhang said.
"[Those] traded for an average of $3.40. Now, this break-even price here is at $108.40, which is 13% above the current price of that stock, which is a pretty incredible trade."
Betting on a double-digit near-term move higher from Tuesday's close in a stock ahead of a catalyst like earnings is always risky, but playing it through options — rather than buying the stock outright — is a good way to define that risk.
This trader is only risking $3.40 per contract should the stock fail to hit that break-even level, which is far less than the potential downside of buying the stock at these levels and getting a 13% post-earnings haircut.
However, as Zhang pointed out, this trader is still taking a pretty big risk given their purchase of 760 contracts.
"This stock is up 40% on the year, and this trader laid out almost a quarter-million dollars in premium to bet that this going to rally another 13% to the upside on earnings," said Zhang.
Zoom Video was more than 7% higher in Wednesday's session.