Unusual Options Activity Points to a Bold Move on Hertz (HTZ)

Although COVID-19 initially devastated Hertz Global (HTZ), sending the rental car giant into bankruptcy more than two years ago, both the company and society at large awaited the one major turnaround event: the reduction or outright elimination of pandemic-related restrictions. From there, the concept of revenge travel would soon materialize as people rushed out of their homes. Fundamentally, this framework boded well for HTZ stock.

But even as the bulls bid up Hertz shares in anticipation of a broader travel renaissance, early signs indicated that the optimistic sentiment would not last. First and foremost, Russia’s invasion of Ukraine unsettled global markets, continuing to cloud prognostications. Simultaneously, the monetary excesses of the early days of the global health crisis finally came to roost this year, sending the inflation rate skyrocketing.

Combined with other headwinds, economic stability became a major concern. Unfortunately, this narrative began to pressure HTZ stock. Sure, travelers now enjoyed far greater mobility. But that wouldn’t matter much in the long run if the economy slipped into recession, thus sparking widespread job losses.

Therefore, many analysts have a dim view on Hertz and its upcoming earnings report for the third quarter of 2022, which is scheduled for release on Oct. 27 before market open. Per Zacks Equity Research, Hertz’s Q3 earnings has been revised 22.7% downward over the past 60 days to $1.09. The consensus estimate for revenue is presently pegged at $2.49 billion.

Continuing, Zacks stated that “We expect the inflation-induced high-interest-rate regime to have dented HTZ’s performance in the to-be-reported quarter. Higher interest rates flare up the cost of borrowing, thus increasing the possibility of an economic slowdown. The economic uncertainty is likely to have an adverse effect on car rental demand, in turn hurting Hertz Global’s top line.”

Still, despite brewing pressure, not everyone is bearish on the rental car agency.

Bold Contrarian Bets Placed on HTZ Stock

Following the conclusion of the Oct. 24 session, HTZ stock found itself as one of the main talking points regarding unusual options activity. Specifically, traders piled into the $22.50 calls with an expiration date of Nov. 18, 2022.

Volume reached 5,907 contracts against an open interest reading of 150. As represented by the midpoint price (27 cents), the bid-ask spread came out to 11.11%. That’s rather high, indicating a general lack of liquidity (i.e. demand) for this transaction. As well, market makers often give themselves a wider margin for trades that are difficult to properly place.

For the record, HTZ stock closed at $18.40 on the Monday session, having gained 2.8% against Friday’s close. For the aforementioned call to be at the money, shares will need to rise 22.28% in 24 days since the order was placed. That’s aggressive considering that Hertz will soon disclose its Q3 report, with the consensus view targeting a lackluster result.

Interestingly, though, the aforementioned calls on HTZ stock align with the predominant trend in the options market. According to data from Barchart.com, Hertz features a put/call open interest ratio of 0.53. Usually, the threshold between bullish and bearish sentiment stands at 0.70, with figures lower than this level indicating that more traders are buying calls than puts.

Also, what’s noteworthy is that Wall Street analysts have an overall favorable view about HTZ stock. Three months ago, analysts pegged Hertz as a “moderate buy” based on four “strong buy” ratings and two “hold” ratings. In the current month, the consensus remains the same, just with the addition of a new rating of “moderate buy.”

Macro Dynamics Weigh Heavily on Hertz

Bolstered by analysts’ endorsements and bullishly oriented unusual options activity, should retail investors also bid up HTZ stock despite the economic warning signs? To be on the safe side, market participants should approach Hertz with a somewhat skeptical profile.

According to data from Similarweb.com, over the last three months, Hertz.com’s global traffic rating decreased from 5,828 to 7,387. This dynamic suggests that fewer people are interested in traveling, which would not bode well for HTZ stock.

In addition, total visits to Hertz’s website steadily eroded from 8.6 million in June of this year to 6.7 million in August. From the data, it appears that travel sentiment has begun to fade as macro pressures such as soaring inflation begin to impact consumer behaviors.

Indeed, high-level datapoints suggest that the loss of traffic has less to do with Hertz specifically and more about wider economic challenges. For instance, the U.S. Bureau of Transportation Statistics reports that since May 2022, vehicle miles traveled has declined over consecutive months through July.

Until people feel the willingness and financial capacity to travel, investments like HTZ stock will remain suspect. Therefore, if you absolutely must speculate on Hertz, do so with money you can comfortably afford to lose.

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