Large Bearish Lyft Option Trades Suggest There Could Be More Downside Ahead

Lyft Inc LYFT shares traded lower by another 7 percent Monday and are now down 35 percent from their IPO price just last month. While long-term investors consider buying on the dip, at least one large options trader made a pair of big bearish bets on Monday that the Lyft bloodbath is far from over.

The Trades

On Monday morning, Benzinga Pro subscribers received two options alerts related to Lyft.

The first unusually large trade was the purchase of 1,268 Lyft put options at a $47 strike price that expire on May 17. The puts were purchased at the ask price of $1.897 and represent a $240,539 bearish bet at a break-even price of $45.10. The price suggests another 6.5 percent downside for Lyft by the end of the week.

Shortly thereafter, likely the same trader made a second purchase of an additional 766 Lyft put options expiring Friday at a strike price of $51.50. This time, the buyer paid $4.60 at the ask price, bringing the total bearish bet on Lyft up to $592,899.

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Due to the relatively complex nature of the options market, options traders are generally considered to be more sophisticated than the average stock trader. In addition, large options traders are often professional, wealthy individuals or institutions, either of which could have unique insight or information about a company. Even traders that stick exclusively to stocks watch the option market closely for unusual trading activity as an indicator of where the “smart money” is focusing.

Selling The Ridesharing Hype

Lyft’s IPO has unquestionably been a disaster up to this point, and Uber Technologies Inc UBER shares are now trading 17 percent below their IPO price in just two days. The bearish Lyft trader may believe Uber’s stock will follow a similar trajectory as Lyft in the coming weeks, potentially dragging Lyft down to new lows as well.

Because stock investors often use put options to hedge larger bullish stock positions, there’s no way to be 100 percent certain whether an option trade is a standalone purchase or a hedge against a stock position. Given the buys on Monday totaled less than $600,000, the bearish bets on Lyft in this case are unlikely to be a hedge.

Lyft's stock traded around $47.42 per share at time of publication.

Related Links:

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How To Read And Trade An Options Alert

Photo courtesy of Lyft.