Large Virgin Galactic Option Traders Are All Positioning On One Side Of The Trade

Virgin Galactic Holdings Inc SPCE shares are trading higher this week and are now up 57.5% in the past month.

On Tuesday, several large Virgin Galactic option trades were executed as traders position themselves following a key update on the production of the company’s second spacecraft.

The Trades

On Tuesday, Benzinga Pro subscribers received two option alerts related to unusually large trades of Virgin Galactic options:

• At 10:12 a.m., a trader bought 600 Virgin Galactic call options with a $14 strike price expiring on March 20 near the ask price at $1.75. The trade represented a $105,000 bullish bet.
• At 10:15 a.m, a trader bought 1,000 Virgin Galactic call options with a $20 strike price expiring in January 2021 near the ask price at $1.75. The trade represented a $175,00 bullish bet.

The two trades represented a combined bullish bet of $280,000. The larger of the two trades has a break-even point of $21.75, suggesting nearly 53% upside for the stock over the next year.

Why It's Important

Even traders who stick exclusively to stocks often monitor option market activity closely for unusually large trades. Given the relative complexity of the options market, large options traders are typically considered to be more sophisticated than the average stock trader.

Many of these large options traders are wealthy individuals or institutions who may have unique information or theses related to the underlying stock.

Unfortunately, stock traders often use the options market to hedge against their larger stock positions, and there’s no surefire way to determine if an options trade is a standalone position or a hedge. In this case, given the relatively modest size of the two Virgin Galactic trades on Tuesday morning, it’s unlikely they were institutional hedges.

Option Market Extremely Bullish

Tuesday’s large trades are just the latest in a series of large bullish Virgin Galactic option trades in the past two months. Since late November, Benzinga Pro subscribers have received 17 option alerts related to unusually large Virgin Galactic trades, and all 17 of the trades have been either calls purchased at or near the ask or puts sold at or near the bid, trades typically considered to be bullish. Since the first bullish option alert back on Nov. 22, Virgin Galactic shares are up 84.3%.

Virgin’s rocket fuel this week came from news last week that Virgin’s second spaceship, an unnamed sister ship to its VSS Unity, has reached “Weight on Wheels” status. The ship is reportedly 90% assembled and appears to be on schedule. The Unity has already been successfully launched, but Virgin has said it plans to have five craft in operation by 2023.

Option traders seem to see a major opportunity in space tourism.

In December, Morgan Stanley initiated coverage of Virgin Galactic with an Overweight rating and $22 price target and said hypersonic point-to-point travel is the real long-term money maker for Virgin.

Benzinga’s Take

After such a strong rally in such a short period, it wouldn't be surprising to see traders start taking money off the table rather than betting on additional upside. The fact that the January 2021 calls traded on Tuesday are so long-dated and so far out-of-the-money suggests the buyer is bullish on Virgin Galactic on a fundamental level and is not simply riding the stocks near-term momentum.

The stock trades around $14.22 per share at time of publication.

Do you agree or disagree with these predictions? Email feedback@benzinga.com with your thoughts.

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