How Option Traders Are Playing Zoom Video As Coronavirus Cases Spike

Zoom Video Communications Inc ZM shares rose 6% on Friday on news of surging U.S. coronavirus cases and tightening lockdowns in certain areas of the country.

On Friday, Pfizer Inc. PFE and partner BioNTech SE - ADR BNTX applied for emergency use authorization for their coronavirus vaccine candidate, but trading action in Zoom shares suggests investors are increasingly predicting lockdowns could get worse before the vaccine hits the market.

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

• At 9:44 a.m., a trader bought 400 Zoom call options with a $420 strike price expiring on Friday near the ask price at $5.361. The trade represented a $214,400 bullish bet.
• At 9:59 a.m., a trader sold 400 Zoom call options with a $430 strike price expiring on Nov. 27 at the bid price of $13.321. The trade represented a $532,840 bearish bet.
• At 10:19 a.m., a trader sold 400 Zoom put options with a $460 strike price expiring on Dec. 18 at the bid price of $31.301. The trade represented a $1.25 million bearish bet.
• At 11:07 a.m., a trader sold 274 Zoom call options with a $420 strike price expiring on Dec. 18 near the bid price at $55.70. The trade represented a more than $1.52 million bearish bet.

Related Link: Zoom Video, Alibaba Among Most Profitable Shorts Since Election Day

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 trades on Friday, they could certainly be an institutional hedge.

Vaccine Impact: The logic behind the Friday gain in shares is that Zoom is one of a small handful of companies that has witnessed a surge in business thanks to the pandemic. The more coronavirus cases spike, the more likely businesses will continue to rely heavily on Zoom’s video conferencing software in the near-term. Remote workers leaving their homes and returning to the office would be bad news for 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.

Surprisingly, while Zoom shares traded much higher on Friday morning, the three largest option trades of the morning were all bearish in nature, suggesting the smart money is anticipating the rally could be short-lived.

Benzinga’s Take: With Zoom shares already up 548% year to date, traders shouldn’t expect too much additional near-term upside from Zoom’s business, especially given a vaccine appears to be just around the corner. At the moment, Zoom simply appears to be one of several “lockdown” stocks day traders are using to trade the latest coronavirus headlines.