This Week’s Unusual Options Activity: A Deep Out-of-the-Money Bet on Yext
Last week when I ran through my unusual options activity scanner, a stock I’ve never heard of before popped up.
Yext, Inc. (NYSE: YEXT), a tech stock based in New York.
Now, I don’t spend time digging to find growth stocks so it should be no surprise I haven’t heard of this small-cap stock before.
You can blame it on my system-driven mentality.
But when the options activity leads the way, I’ll gladly take a deeper look.
Before we do that though, let’s start with the options activity that brought the stock to my attention in the first place.
This one came in right at a $200,000 bet on the stock to rally. This may not be our usual million-dollar gambles that we cover, but it is just as interesting.
That’s because they bought the January 21, 2022 $25 call options. A full six months of time in this trade, making it a long-term bet.
And the strike price is what really catches my attention.
The stock was trading around $14 per share when the trader bought these call options.
That means, on the expiration date of January 21, 2022, the stock would need to be up 80% just to be at breakeven.
This is what we’d call a deep out-of-the money strike price.
And these option trades are unusual exactly for that reason I just showed you. They are betting on the stock to rise 80% in the next six months, just to hit breakeven.
Since they only paid $0.40 per share for the option, it may double in no time from there, but still. That’s one heck of a rally to be betting on in a six-month time period.
This is also why unusual options activity is so important.
It shows us where traders are willing to literally put their money where their mouth is. They think Yext is going to double in the next six months, and a call option gives them the best bang for their buck.
They could have bought over 14,000 shares at the current price of the stock.
If Yext climbs to $30 a share, a 114% rise, they would have with a little more than double their initial $200,000.
But this trader, by grabbing deep out-of-the-money calls, would end up profiting $2.3 million off a $200,000 bet with the same price move. That’s a 1,000% increase.
The risk is what makes the stakes even higher. If the stock is slow to climb and stays below the $25 strike price, the options trader risks losing it all.
A Look Under the Hood
So we have an under-the-radar small cap stock, that is drawing the attention of one trader willing to put up the price of a home on this bet.
Honestly, I’ve never heard of the stock until it popped up on the unusual options activity scanner.
Again, I’m a trader, so the fundamentals don’t much matter to me.
But I dug a little deeper into what the company does.
Yext operates an artificial intelligence search program for corporations. The company helps businesses provide answers to customer questions and control facts about their business posted throughout the web.
This sounds like a great program that will have strong demand for years to come.
But I still don’t know anything about the company’s fundamentals.
What I do know is that we have an interesting company seeing money starting to flow their way in the options market.
That makes this one bet that just might be crazy enough to follow if you ask me.
Chad Shoop CMT
Editor, Quick Hit Profits
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