Should Investors Follow the Unusual Options Activity for Manchester United (MANU)?

Although thousands of public firms are available for trading across the major exchanges, some sectors are significantly underrepresented. Among them is the professional sports markets. Typically, retail investors seeking exposure to a sports league must do so indirectly, such as wagering on broadcasting services like Comcast (CMCSA). Therefore, when Manchester United (MANU) launched its initial public offering back in 2012, many people took notice.

For the uninitiated, Manchester United is one of the most popular soccer (football to everyone else) clubs in the world. Playing in the Premier League – England’s top level in its football league system – Man United earned several domestic and European titles throughout its more than a century-long history. Affectionately known as the Red Devils among its diehard fans, the club’s influence extends well beyond its home grounds at Old Trafford.

Essentially, then, the narrative for MANU stock doesn’t just focus on the investment proposition. Rather, more than a few investors likely bought shares simply because they were fans of the soccer club. However, even that didn’t prevent Manchester United the company from posting disappointing results. Since the security’s first public close, it’s down 8.4% through the Aug. 12 session.

That’s not exactly riveting stuff. Then again, management has been making some moves to hopefully spark a resurgence. Earlier this month, Qualcomm (QCOM) became an official global partner of Man United, inking a multi-year collaborative deal. About a month before that in early July, DXC Technology (DXC) signed a multi-year partnership to “digitally transform the soccer club’s operations and enhance its fan experiences across the globe.”

Adding more intrigue, MANU stock recently became a highlight of unusual options activity.

MANU Stock Lights Up the Board

To be sure, it would be wrong to characterize the enthusiasm toward MANU stock in the derivatives market as a highlight. Instead, it was the highlight, representing the most unusual of odd trading patterns in the options arena.

Specifically, the bulls piled into the $14 call options with an expiration date of Sept. 16, 2022. Volume reached 37,630 contracts against an open interest reading of 105. With a closing price on Aug. 12 of $12.82, MANU stock will need to gain 9.2% in a little over a month for this contract to be in the money.

Interestingly, the bid-ask spread as represented by the midpoint price (32 cents) was 8.57%. This figure isn’t terribly bad when it comes to the options market. However, it’s also not the narrowest. While a high spread makes the proceedings more profitable for market makers, they also prefer to keep this margin tight within reason to attract more traders.

Thus, market observers can make two inferences. First, a very wide spread indicates a lack of liquidity for the trade. Second, such magnitude of width also represents a safety margin for market makers. If the underlying stock is too volatile, market makers don’t have much confidence in placing the transaction properly; hence the wider spread.

Conspicuously, MANU stock, while up 19% in the trailing month, is nevertheless down about 13% for the year.

Sports is a Difficult Investment

While MANU stock brings a level of intrigue and excitement to the table that many other investments lack, it’s also difficult to ignore that the professional sports arena is a difficult market for any participant. Again, Man United is a losing investment (so far) since its first day of trading.

Further, the company will find difficulty attempting to break through in the competitive sports market. For instance, according to data from Syracuse University, “no sport has been better for the net worth of franchise buyers than professional basketball. From 2010 to 2016, the average NBA franchise has jumped 22.66 percent in value annually.”

Of course, this stat doesn’t necessarily mean that English football is a money pit. However, even a great club like Man United has had trouble sustaining growth. For instance, its trailing-12-month revenue stands at $753.5 million. Setting aside the unique disruption of COVID-19, the last time top-line sales were this low was in 2017.

One could make the argument that with the pandemic behind us, MANU stock can continue moving forward. After all, back in 2019, annual revenue almost hit $800 million. However, with the U.K. suffering a worse inflation problem than here in the U.S., Man United’s fanbase faces severe headwinds.

Picking Up a Yellow Card

While an interesting if not flamboyant idea in the equities market, MANU stock simply lacks credibility. It’s not that speculators can’t make money off the soccer club. Rather, it’s that at every opportunity, the organization has failed to deliver for shareholders. Therefore, unless you’re playing with funds earmarked for speculation, you should probably sit on the sidelines with Man United.

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