Real estate listing firm Zillow (Z) saw shares soar to $200 before dropping back down to $120. Now, with shares on the rise to $140, one trader is betting on a move higher.
That’s based on the September $120 calls. With 162 days until expiration, the option is about $20 in-the-money given the recent price of $140. Over 10,100 contracts traded compared to a prior open interest of 133, for a 76-fold rise in volume.
The trader paid about $33 for the option.
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Shares are up more than 250 percent in the past year. While the real estate company isn’t yet profitable, the company has been trending toward profitability in recent quarters. A strong national real estate market in the past year looks likely to continue, which should continue to move the bottom line.
Action to take: The deeply in-the-money trade is unusual, and a sign that the trader is looking for a strong return with some downside protection. With the trade about $20 in-the-money, the real cost in terms of time premium on the option is about $13. If shares continue to rally, say back to their old highs of $200, the option could more than double to $80.
The option is an attractive play on a strong real estate market that’s likely to continue this year. Traders with less capital to put to work can use a higher strike price, which will cost less up front.