Unusual Options Activity GPS, ROOT, LUV

August 31, 2021

Mr Miyagi

I’ll call this the “Miyagi-do” Market.

“Walk on road. Walk right side, safe. Walk left side, safe. Walk middle, sooner or later, get squish, just like grape.” – Mr-Miyagi

The FANG or FAANG or FAANMG or whatever you want to call those top stocks and the “fantasy” stocks like SPRT are making some good moves. (I was kind of kidding when I said $50… WOW!)

The middle of the market seems to be having some trouble getting on its horse.

And with the end of the month here, brace yourself over the next 72 hours. It feels like the only way this market goes lower is by first making an upside down “V.” 

Possibly to $448.10.

Anyways, here’s 3 interesting trades today…

UNUSUAL OPTIONS ACTIVITY

1. Demand For This Jacket is Off the Charts… & the Stock?

2. Is This Time Different for ROOT?

3. Losing Patience With THIS Sector

Let’s get started...


UNUSUAL OPTIONS ACTIVITY GPS

Demand For This Jacket is Off the Charts… & the Stock?

Kanye West entered into a 10-year partnership with Gap (GPS) back in June 2020. The stock soared 20% on that day from $10 to $12, before making a huge run to $37.50 over the next 10 months.

His first piece from his collection is finally hitting the stores. It’s a jacket that looks fantastic if you’re trying for that “next-on-line-to-Mars” look. I’m no fashionista, though, so it may not surprise you that everyone wants one.

This article outlined the situation at Gap well:

Demand is apparently off the charts. During a conference call with analysts Thursday evening, Syngal said that "it's had a great response. We've had a much younger customer. We've had 75% of those customers being new to the Gap brand. And so we're excited to be out the gate."

With Athleta and hoodies on the comeback, GPS might just be the “it” brand again.

The chart is having a little trouble though…

No doubt this run was significant and some digestion should be expected.

The $26 level is approximately the 50% Fibonacci retracement level. It’s important to hold this level and we should see some support here, which has showed up over the last couple of months.

However, even with decent earnings last week and an early morning pop on Friday, the stock was sold off pretty hard.

Put Buyers have been in the name since last week targeting a move closer to $19-$20.

But a new player entered today with some Unusual Options Activity in GPS…

Someone stepped in to buy 11k GPS September 10th $26.50 Calls for about $0.68. There was additional Call buying in the September 17th timeframe. 

Is Gap Stores at the beginning of a much larger fashion trend?

Or is it just another false start for the company like many others over the last 25 years?


UNUSUAL OPTIONS ACTIVITY ROOT

Is This Time Different for ROOT?

After SPRT last week, you have to at least pay attention to the craziness when it’s in motion.

ROOT was talked about on the podcast not too long ago as it was on its way to $14. I said it then and I will say again… I like the idea: insurance driven by data coming from our apps. Frankly, it’s brilliant. The issue is the price you pay for the company.

Down here, it starts getting interesting.

Now, ROOT had some good news earlier this month when it announced a partnership with Carvana. It looks like Carvana also likes the idea and took a stake in the company.

"In Root, we have found a partner that shares our customer focus and technology-driven approach to delivering exceptional customer experiences. We are excited to build on the success of our existing partnership by creating a unique, integrated solution," said Carvana CEO Ernie Garcia. "We look forward to introducing our customers to Root’s seamless insurance process and believe that this integrated offering will deepen and extend our customer relationships between transactions."

That’s a pretty good endorsement. However, you must concede that the shorts have the upper hand here…

The stock has trended lower since its IPO-high at $29.48 last October. There’s been these spurts before, that have only seen new lows after.

Even that Carvana partnership couldn’t hold the stock up. It went down on huge volume. 

There are approximately 30mm shares short in the name.

And that’s what attracts the new “WSB Sharks”…

Right from the opening and without any major news, thousands of ROOT Call buyers jumped into the name. You can see the highest options volume, over 100k options, already traded hands in the September expiration.

After the flurry, the stock sold off pretty hard.

So, I have to ask… Is this time different?


UNUSUAL OPTIONS ACTIVITY LUV

Losing Patience With THIS Sector

The airlines were supposed to takeoff with the reopening of the economy. Unfortunately, the Delta variant has slowed things down. 

Stocks like UAL and AAL were ready to explode if they could just get back that international and business seat back to some normality. It was a risk, which also gave those stocks a better reward. 

That didn’t pan out.

The darling of the airlines was Southwest Airlines (LUV). LUV had very little international presence and focused solely on the US traveler in some of the warmest regions of the country.

Even LUV is down…

… Looking just as weak as the other airlines. They all have the 50dma crossing the 200dma with bear flags in the making.

And remember all those call buyers in the airliners we saw over the last few months?

As you see in the LUV October $55 Calls, the big boys are getting out. 

This doesn’t mean that they are getting out of the stock… they might be.

It simply tells us that they think an explosion higher is unlikely.

Now go make some money!

Best,
Felix

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