Unusual Options Activity: Zoom Communications (ZM)

While the pandemic lockdowns are all but over, at least one trader expects shares of Zoom Communications (ZM) to regain some of their recent decline.

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  • That’s based on the September $290 calls. Nearly 6,300 contracts traded against a prior open interest of 114, for a 55-fold jump in volume. The trade has 126 days to play out, and with shares right near $290, it’s an at-the-money trade.

    The buyer of the call paid about $36.15 to make the trade. With an at-the-money trade, the option should move dollar-for-dollar with a move higher in shares, less any declining time premium. Shares of Zoom have shed nearly half their all-time high peak of $588 per share.

    Even with that decline, shares are still up nearly 80 percent over the past year, beating out the overall market average. Revenue and earnings are likewise up triple-digits in that time.

    Action to take: This rebound trade makes some sense. While shares are at 6-month lows, they’re also heavily oversold, suggesting a mild relief rally could be in the cards in coming weeks. An at-the-money call option trade is likely to see a profit and avoid a loss rather than an out-of-the-money call option trade here.

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  • This is one pricey option trade, but even a modest move higher could lead to a reasonable profit in the coming weeks.

     

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