Potential options in tech IPO

01/09/20
  • WORK has rebounded since Nov. after post-IPO decline
  • Stock broke out above resistance this week
  • Options may be trading at attractive levels

In the five months or so after making its trading debut last June, biz tech/communications company Slack Technologies (WORK) stock was, well, a little slack, falling from $38.62 to a low close of $20.13 on November 11.

Since then, though, WORK has tightened up to the tune of around +20%, and yesterday it added on to Tuesday’s breakout move above its October-December swing highs:

Chart 1: Slack Technologies (WORK), 6/20/19–1/8/20. Slack Technologies (WORK) price chart. Rebound off Nov. lows

Source: Power E*TRADE


There’s no way to know whether the stock has definitively turned a corner, but it may grab the attention of short-term traders—especially options traders—looking for “bargain-priced” stocks with the potential for upside follow-through.

In addition to the short-term momentum that can sometimes follow a price breakout, WORK has shown some potentially attractive options characteristics recently, including relatively high positive delta levels, as shown in the following LiveAction scan:

Chart 2: LiveAction scan, Largest positive net deltas, 1/8/20. Unusual options activity. High options delta.

Source: Power E*TRADE


Delta is the amount an options price is expected to change relative to its stock—e.g., a delta of +0.65 (+65%) would mean the option price should increase $0.65 for every $1 increase in the stock. (Calls have positive deltas, puts have negative deltas. The more in-the-money an option is, the higher its delta; at-the-money options typically have deltas around 50%.) All things considered, the higher the delta, the more option bang you’re getting for your buck.

Also, WORK options implied volatility (IV) was a little lower than average, and lower IV often translates into relatively lower options prices. The solid line at the top of the following chart shows WORK options IV (solid line) was below the 30-day average (dashed line) across expirations:

Chart 3: Slack Technologies (WORK) options and IV, 1/8/20. Slack Technologies (WORK) options chain. Relatively low IV

Source: Power E*TRADE


This means traders looking to put on a leveraged position to take advantage of a potential rally in WORK shares may have been looking at relatively inexpensive call options prices (lower-than-average IV) with the potential for a larger-than-average response to price changes in the stock (high delta). For example, the April $24 and $25 call options highlighted in the above chart were both trading for less than 3.00 ($300 per contract) yesterday.

In such situations, some bullish traders choose to make a long-side play when a stock pulls back (which should make calls even cheaper). Regardless, experienced traders know conditions can change on a dime, and getting an edge means taking advantage of opportunities when they present themselves.

Market Mover Update: If the stock market was feeling edgy about Iran’s ballistic missile attack on US armed forces in Iraq on Wednesday, it wasn’t showing it: Both the S&P 500 (SPX) and Nasdaq 100 (NDX) hit record intraday highs yesterday. And crude oil prices collapsed, tumbling more than 5% to their lowest level (below $60/barrel) in three weeks.

And while Facebook (FB) may not have kept pace with Apple (AAPL) in recent weeks (not many stocks have), it has rallied more than 6% since December 18, the day before it broke out of the consolidation noted in “Checking your FAANGs.”

Aerojet Rocketdyne AJRD) kept soaring yesterday, rallying more than 2% intraday yesterday to a new record high (see “Bulls in space”).

Today’s numbers (all times ET): Minneapolis Fed President Neel Kashkari speech (9:30 a.m.), EIA Natural Gas Report (10:30 a.m.).

Today’s earnings include: WD-40 (WDFC), Acuity Brands (AYI), KB Home (KBH).

 

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