Unusual Options Activity Shows That Traders Made Their Ride-Sharing Choice

Recently, I discussed the rise of bearish sentiment weighing down ride-sharing firm Lyft (LYFT). Reeling from multiple harassment claims, many traders undoubtedly feared the company could suffer severe reputational harm. As well, Lyft faces competitive pressures in a tough economic environment. Therefore, the pessimism was understandable. But what about rival Uber Technologies (UBER)? Will UBER stock be subject to a similar magnitude of bearishness?

So far, activity in the derivatives market suggests that traders if anything are bullish on the company that effectively pioneered the sharing economy. While Uber and Lyft compete in almost identical fashion in the ride-sharing department – leveraging communication APIs to connect drivers with passengers – the main difference is scale. The latter largely focuses on the U.S. market while the former expanded into multiple international regions.

From personal experience, Uber’s exponentially wider footprint represents a lifesaver (perhaps literally in some cases) for frequent travelers. One of the best pieces of advice from tourism experts is to not look too much like a clueless American. Otherwise, one risks getting taken for a ride. However, with Uber’s platform, all administrative details are handled within the corporate system.

Put another way, an incentive exists – irrespective of any language or cultural barriers – for ride-sharing providers to deliver the best service possible. Incur too many complaints or get caught committing a serious violation and a driver loses the income-generating opportunity. In some countries, the income on a relative basis can be substantial.

Beyond the ride-sharing component, Uber also features the food-delivery arm Uber Eats. The beauty here is that an app user can either order delivery services or pick up at the restaurant. Either way, any issues associated with the underlying product is handled by Uber, making customer resolutions faster and more convenient.

Essentially, Uber represents an everyday integration whereas Lyft ties in with a mostly narrow focus. From that angle, it might not be surprising that UBER stock experienced positive attention regarding unusual options activity.

UBER Stock Presents a Sharp Contrast to Its Rival

When the closing bell rang out for the Sept. 27 session, traders bid up two options contracts for UBER stock, both of them with bullish implications. First, market participants focused on the $22 calls with an expiration date of Sept. 30, 2022 – this coming Friday. Volume reached 4,164 contracts against an open interest reading of 118. The bid-ask spread as represented by the midpoint price ($5.60) came out to 1.79%.

Second, traders bought up the $28 calls with an expiration date of Oct. 7, 2022. Here, volume reached 2,933 contracts against open interest of 160. The bid-ask spread came out to 1.96%, similarly narrow like the $22 calls. Narrow spreads indicate higher liquidity as well as greater confidence among market makers to facilitate the transaction.

What’s interesting about UBER stock, though, is that the recent bullishness toward the underlying platform contrasts with the predominantly bearish trading in the options market. Per data from Barchart.com, the put/call open interest ratio for Uber was 0.77. Typically, the threshold that separates bullish and bearish sentiment is 0.70, with figures above this level reflecting pessimism (as more traders are buying puts than calls).

You may recall that with Lyft, the opposite circumstance was true. Recently, traders had become bearish on LYFT stock yet the dominant trend (based on the put/call ratio) has been bullish.

From the experts’ perspective, sentiment toward UBER stock hasn’t changed much. Three months ago, 18 out of 20 analysts (or 90%) rated Uber either a “strong buy” or a “moderate buy.” This month, 22 out of 25 analysts (or 88%) rated Uber with an optimistic outlook.

Uber Presents an Audacious Bet

Despite the above distinctions, investors shouldn’t automatically assume that UBER stock is absolutely superior to LYFT. According to data from Gurufocus.com at time of writing, the investment resource rated both underlying companies as possible value traps.

Financially, arguably the biggest risk to Uber is that it may be biting off more than it can chew regarding its wholesale ambitions. Under the retained earnings line item for its most recent quarter, Uber features a loss of $32.16 billion. While Lyft hardly ranks in positive territory, its loss for the same metric of $8.93 billion presents the smaller company in a more confidence-inspiring light.

At the same time, there may be a case against being too conservative. As mentioned earlier, the business undergirding UBER stock offers a more utilitarian profile. Through its various business arms, people can order rides, order food, order takeout or even have groceries delivered to them. In addition, Uber commands myriad partnerships, enhancing the underlying platform’s conveniences.

While Lyft is certainly getting into the game of expanding beyond ride sharing, the company’s narrower footprint may pose challenges. In other words, while Uber’s net losses are steeper, it’s also making itself indelible, becoming the go-to brand in the sharing economy. The bet just might pan out, helping to explain bullish sentiment toward UBER stock.

No Easy Ride

To be clear, betting on UBER stock won’t be an easy endeavor for contrarian investors. Plenty of risks exist, particularly in this consumer economy. However, Uber’s willingness to become ingrained in daily activities might give it the edge over rival Lyft.

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