Here’s What Unusual Options Activity Might Say About the Push to the Office

Immediately following the onset of the COVID-19 pandemic, teleconferencing platform provider Zoom Video Communications (ZM) naturally gained significantly bullish interest among startled investors. Essentially, the company allowed the white-collar component of the workforce to maintain productivity, only from home. Now that the global health crisis is fading, however, upper management teams feel differently about telecommuting privileges, leaving ZM stock at an awkward juncture.

A contentious issue that epitomizes the latest tension between employers and employees, more than a few high-profile executives voiced their displeasure about work-from-home privileges becoming a permanent workforce fixture. Arguably, Elon Musk of Tesla (TSLA) represents the most prominent voice demanding workers return to the office. However, he’s hardly alone in the sentiment, with other execs broadcasting concerns about telecommuting abuses.

Still, employees at large may enjoy an ace up their sleeve, primarily the tight labor market. With the latest September jobs report indicating that employers continued to hire people at a brisk pace, worker bees enjoy significant leverage. If they decide to quit their posts, the underlying companies must engage in fierce competition for the best talent.

Therefore, taking a contrarian bullish position on ZM stock could be a viable idea. True, since peaking around October 2020, the equity value steadily eroded as the novelty of working from home wore off. As well, the normalization of social dynamics suggested broadly that employees would return to their posts.

However, with certain conditions favoring at-home workers, bullish traders targeted ZM stock in the options market.

ZM Stock Attracts the Optimists

Following the conclusion of the Oct. 7 session, Zoom Video became one of the subjects of unusual options activity. Specifically, optimists piled into the $78 calls with an expiration date of Oct. 14, 2022 – this coming Friday. In the open market, ZM stock closed at $76.59, meaning that it must move up 1.84% for this trade to be at the money.

Moreover, volume for the transaction reached 10,794 contracts against an open interest reading of 271. Further, the bid-ask spread as represented by the midpoint price ($1.85) came out to 6.49%. Generally, higher spreads represent lower liquidity for the underlying trade. As well, market makers often give themselves a wider safety margin for transactions that are difficult to place.

Despite the severe loss in the open market – ZM stock hemorrhaged over 58% of equity value on a year-to-date basis – the predominant trend in the options arena for Zoom is bullish. According to data from Barchart.com, ZM features a put/call open interest ratio of 0.61. Typically, the delineation point between bullish and bearish sentiment is 0.70, with figures lower than this point reflecting bullish sentiment (i.e. more traders are buying calls than puts).

However, prospective investors should realize that analysts are not sold on ZM stock. Three months ago, Zoom featured a consensus rating of “moderate buy” without anyone issuing a sell rating. In the current month, the overall consensus rating remains the same. Still, the difference is that two analysts rated ZM as a “strong sell.”

Investors Should be Cautious with Zoom

Although some positive catalysts bolster the fundamental argument for ZM stock, in the grand scheme of things, pivoting toward telecommuting platform specialists seems particularly risky. True, the labor market is incredibly tight at the moment. But this condition is not guaranteed to sustain indefinitely.

The headwind comes from the Federal Reserve. Through public statements and its own actions – recently raising the benchmark interest rate by 0.75% – the Fed remains committed to attacking the inflation rate. However, the resultant rise in borrowing costs would likely be deflationary for the labor market. In turn, worker bees might change their tune.

Even before the latest jobs report setting the stage for an ultra-aggressive Fed, many companies were already bracing for a possible recession. Therefore, what is currently a tight labor market could turn uncomfortably loose. Essentially, then, it would be in workers’ best interest not to draw attention to themselves – at least not in a negative context.

However, due to psychological elements like proximity bias, it’s simply easier for upper management to retain their in-office workers over their at-home counterparts. If this trend plays out, Zoom will steadily lose relevance, making ZM stock a challenged opportunity.

Go with the Obvious Signs

While contrarianism in the equities sector sometimes leads to outstanding profitability, when it comes to ZM stock, it’s probably better to adopt a conservative approach. Yes, workers are resisting returning to the office for now. However, under a possible recessionary framework, employers would then have most of the power, making telecommuting largely a moot point.

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