A Look At Workhorse Options Activity Amid USPS Delay, Roth Downgrade

Workhorse Group Inc WKHS shares are down 12.8% Tuesday after a major USPS contract decision was reportedly delayed, prompting a stock downgrade from Roth Capital.

Despite the difficult day on Wall Street, one large option trader was making a big bet on a Workhorse rebound.

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

• At 9:32 a.m., a trader bought 1,381 Workhorse call options with a $20 strike price expiring on Friday near the ask price at $5.536. The trade represented a $764,521 bullish bet.
• At 9:50 a.m., a trader bought 870 Workhorse call options with a $20 strike price expiring on Friday near the ask price at $4.50. The trade represented a $391,500 bullish bet.
• At 10:28 a.m., a trader bought 1,000 Workhorse put options with a $19 strike price expiring on Jan. 15 near the ask price at $3.901. The trade represented a $390,100 bearish bet.
• At 10:31 a.m., a trader sold 996 Workhorse put options with a $19 strike price expiring on Jan. 15 near the bid price at $3.90. The trade represented a $388,440 bullish bet.

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Why It’s Important For Workhorse 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 biggest trades on Tuesday, they could certainly be institutional hedges.

USPS Contract Delay: The big negative catalyst for Workhorse was a downgrade by Roth Capital analyst Craig Irwin. Irwin cut his rating from Buy to Neutral and lowered his price target from $33 to $27.

Irwin said he had been in email communication with the USPS regarding Workhorse’s bid for an $8.1 billion contract given the origin deadline for the decision was Tuesday.

“A USPS PR spokesperson indicated it now expects a decision by the end of 2020. We always viewed political optics of an award before the election as essential, and now see increased risk for an award,” Irwin wrote in the downgrade note.

It seems Tuesday’s large Friday call buyers see the stock’s near-term sell-off as an overreaction and may even expect some good news on the USPS contract this week.

Benzinga’s Take: With Workhorse shares already up 679% year to date, there is no question the USPS contract is a must-win for the stock if investors want to avoid significant downside. The $764,000 trade has a break-even price of $25.54, suggesting at least 7.8% upside by the end of the week.