Unusual Options Activity: Shopify (SHOP)

Ecommerce platform Shopify (SHOP) has rebounded strongly from last year’s selloff so far this year. One trader sees shares giving back some of their gains in the coming weeks.

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  • That’s based on the August 18 $45 puts. With 38 days until expiration, 9,502 contracts traded compared to a prior open interest of 282, for a 34-fold rise in volume on the trade. The buyer of the puts paid $0.34 to make the bearish bet.

    Shopify last went for about $62, so the stock would need to drop about 27 percent for the options to move in-the-money. The strike price of the option is still about double the stock’s 52-week low of $23.63.

    While the platform isn’t profitable yet, earnings have increased by 25 percent over the past year.

    Even better, the company has a cash-rich balance sheet, with about $3 billion in net cash after backing out all the debt. That makes it likely that Shopify can stay in business while some competitors go by the wayside.

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  • Action to take: Shares have more than doubled off their lows, and could pull back in the coming weeks. Investors interested in shares should look for an entry point in the low $50 range, not the low $60 range.

    For traders, the August $45 puts are a bit aggressive, but even a small pullback in the coming weeks could lead to high-double or low triple-digit returns for the options, making them an inexpensive way to profit from a drop in Shopify.

     

    Disclosure: The author of this article has no position in the company mentioned here, but may trade after the next 72 hours. The author receives no compensation from any of the companies mentioned in this article.

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