How Option Traders Are Playing Zoom Video Following Encouraging Coronavirus Vaccine News

Pfizer Inc. PFE shares spiked as much as 9.8% Monday after the company said its coronavirus vaccine candidate has been 90% effective in late-stage clinical trials.

The Pfizer news sent stock prices soaring on but pandemic winners like Zoom Video Communications Inc ZM took a big hit, falling 17%.

The Zoom Trades: On Monday, Benzinga Pro subscribers received several option alerts related to unusually large Zoom trades. Here are some of the largest:

• At 10:29 a.m., a trader bought 200 Zoom put options with a $400 strike price expiring on Friday near the ask price at $8.387. The trade represented a $167,740 bearish bet.
• At 10:34 a.m., a trader sold 221 Zoom put options with a $270 strike price expiring on Feb. 19 near the bid price at $1.801. The trade represented a $227,652 bullish bet.
• At 12:03 p.m., a trader bought 338 Zoom put options with a $250 strike price expiring on Jan. 15 at the ask price of $3.80. The trade represented a $128,440 bearish bet.
• At 12:43 p.m., a trader sold 262 Zoom put options with a $400 strike price expiring on May 21 near the bid price at $67.05. The trade represented a more than $1.75 million bullish bet.

See Also: Irrational Exuberance? Stocks Surging, Markets At All-Time Highs On Pfizer's COVID-19 Vaccine News

Why It’s Important For Zoom Investors: 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 large size of the largest trade on Monday, it could certainly be an institutional hedge.

Vaccine Impact: The logic behind the sell-off in Zoom shares is that Zoom is one of a small handful of companies that has witnessed a surge in business thanks to the pandemic. The faster an effective vaccine is available, the sooner the economy could start getting back to normal. Remote workers leaving their homes and returning to the office would be bad news for video conferencing software maker Zoom.

Of course, a certain number of jobs that transitioned to remote work in 2020 will remain remote even after the pandemic is over. A big part of the long-term Zoom bull case will ride on how much of Zoom’s explosive 2020 growth was only temporary.

It seems Monday’s large $1.75 million Zoom put seller sees the large sell-off as an overreaction to the vaccine news.

Benzinga’s Take: With Zoom shares already up 533% year to date, traders shouldn’t underestimate the impact profit-taking may be having on the stock on Monday. Dollars are simply flowing out of big pandemic winners like Zoom and back into casino stocks, travel stocks, live entertainment stocks and other investments that have taken a beating thanks to the pandemic.