Unusual Options Activity: Social Capital Hedosophia Holdings Corp II (IPOB)

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  • Over 3,200 contracts traded on the February 2021 $30 calls on Social Capital Hedosophia Holdings Corp (IPOB). That’s a 28-fold increase in volume from the prior number of open contracts near 117.

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  • With shares trading around $26, shares need to rally about 15 percent for the option contract to move in-the-money. The call buyer paid about $3.10 on average for the options, which expire in 127 days.

    IPOB is a SPAC, a specialty purpose acquisition company. Also known as a “blank check company” many SPACs have a deadline to either make an acquisition or dissolve, returning capital to shareholders.

    So the option surge is a likely bet that the company will make an acquisition soon, likely before the end of the year. More importantly, that acquisition will be accretive to shares.

    Action to take: SPACs have gotten a fair amount of attention lately as a place for large and quick potential profits. The fact that options can be traded against these companies is also a clue that traders love them.

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  • That said, this option is a worthwhile speculation. The rising interest in SPACs may drive capital into these companies, moving shares higher even without an acquisition. Markets tend to rally around acquisition events as well. All in all, there’s a good chance for traders to make mid-to-high double-digit gains on this trade, likely before the end of the year