Huge, Unusual Put Action in Robinhood Stock - A Sign That HOOD Has Bottomed?

A Barchart report shows large, unusual activity in out-of-the-money (OTM) Robinhood Markets Inc (HOOD) put options today. Is this a signal that HOOD stock has reached a bottom? For example, shorting HOOD puts here yields 1.36% at a 10% lower strike price at a 10-day expiry.

That could attract value investors into this short-put play. This is an attractive way to set a lower potential buy-in point and also get paid while waiting. This article will show how that works.

HOOD is trading up today at $66.61 in midday trading. It's been trending lower, as the Barchart chart below shows. Could it be reaching a trough? 

HOOD Stock Looks Undervalued

After all, the company reported strong earnings last quarter, and HOOD stock is at an attractive valuation. Last quarter, its revenue rose 27% YoY, and adjusted EBITDA, or earnings before interest, taxes, depreciation, and amortization (a cash flow measure), rose 24% YoY.

Moreover, despite a negative Q4, its full-year operating cash flow was still positive - $1.68 billion. That works out to a 37.3% operating cash flow (OCF) margin.

But markets are forward-looking. Analysts are forecasting higher revenue this year ($5.42 billion vs. $4.5 billion in 2025). If the company can keep making a 37% OCF margin, its cash flow could rise over $2.0 billion.

And using a 2.60% cash flow yield, HOOD's market value could rise to $77 billion, up from $61.1 billion today:

  $2.0b OCF / 0.0268 = 76.92b mkt value

That implies Robinhood's market value is 26% undervalued (i.e., $77b/61b = 1.26) over the next 12 months. So the HOOD target price is

  $66.61 x 1.26 = $83.92 target price (TP) 

Other analysts believe HOOD stock is even more undervalued. For example, Yahoo! Finance's TP survey of 26 analysts is $117.79. That is 76.8% higher than today's price. 

Similarly, Barchart's mean analyst survey is $119.62.

So, now wonder there is a large out-of-the-money put action in HOOD stock today. Investors are trying to set a lower buy-in, in case HOOD stock dips, and get paid while waiting.

Heavy HOOD Put Option Activity

This can be seen in today's Barchart Unusual Stock Options Activity Report. It shows that over 41 times the prior number of put contracts outstanding have traded at the $59.00 put strike price expiring in 10 days on April 10.

That strike price is 10% below today's price, and so it is said to be “out-of-the-money.” In other words, the put option has no intrinsic value since HOOD has to fall below $59.00 before the buyers of these puts will have any underlying value.

Note that the premium is still very high at 80 cents. That implies that a cash-secured short-seller of these puts can make an immediate yield of 1.356%:

   $0.80 / $59.00 = 0.013556

That's an attractive yield for just 10 days to expiration. In other words, if an investor could repeat this every 10 days, the monthly yield would be 4.0% (i.e., 1.356% x 3 = 4.0%).

And even if HOOD drops to $59.00, the investor still has a lower breakeven point:

  $59.00 - $0.80 = $58.20

That's over 12% below today's price. In other words, it provides an attractive potential buy-in point for value investors.

The bottom line here is that HOOD stock looks cheap. Shorting cash-secured OTM puts like this contract is an attractive way to play HOOD.