Digital business communications stock Slack comes into Thursday afternoon's earnings report as one of the biggest beneficiaries of the work-from-home trend, surging nearly 73% this year.
Despite Thursday's pullback, the stock is still up nearly 20% in the last week, and one options trader is making a huge bet that Slack's momentum will continue after its report crosses the wire.
"The biggest trade we saw [Wednesday] was a big one and an interesting one. Somebody sold 7,000 of the January 2022 45-strike calls for just under $8.90 apiece, and then bought 406,000 shares of stock for just under $40," Optimize Advisors CIO Michael Khouw said Wednesday on "Fast Money."
As Khouw would explain, this trader isn't the only one who thinks Slack will continue to work after earnings. Overall, Wednesday's call volume outpaced put volume by about 5-to-1, and the options market was implying a post-earnings move of about 12% in either direction.
This particular bet, however, doesn't seem to be a play on short-term volatility.
"Basically, this is a trade that's betting on volatility to be compressed," said Khouw. "It's going to make the most money if the stock goes up to that 45-strike price by the January 2022 expiration more than a year and a half away."
"However, this will also make money if the stock drifts higher and volatility comes in, and I think that's what this trader is betting on. Premiums are very high, and I think they think that things are going to begin to normalize."
Slack was trading roughly 4% lower on Thursday.