Affirm Plummets, But Are Even Lower Prices In Store? Option Analysis

Despite being up eight of the last nine weeks, Affirm Holdings Inc AFRM is getting crushed on the week, currently down almost 20% from this week's open and down almost 10% from the cash open on the day.

What Happened: Affirm will report its earnings after-market Wednesday, but the most notable part of day's selling is how it began, which was right after the market close Tuesday (see 5-minute chart, below).

Why It Matters: As you can see in the chart above, there was a big volume surge right after the close, which is a tad unusual considering earnings don't come out until after the close Wednesday. Regardless, the stock is trading above its average 10-day volume printing over 11.9M shares versus an 8.01M average. This suggests there was a material amount of selling ahead of the earnings.

Looking at the option flows, prior to Wednesday there were 198K calls and 133K puts (total of 331K options) with about 19% of those (62K) expiring next Friday, Nov. 19. However, Wednesday alone Affirm traded more than 120K options, so it added 36% of the total options out there (image below).

The largest portion of those options traded Wednesday are short-dated with about 50K of them expiring Friday. What is of note on the short-dated options is on the put side the largest volume by the strike is at $130 (see image below).

Considering the implied volatility is high for those $130 puts (around 239%), these could be put sellers taking advantage of the high premium, which may provide support for the stock at that price.

What's Next: With earnings coming up after the close Wednesday, traders will get an answer if the $130 level can hold as support. Considering the material selling that started Tuesday after the close, along with the bearish pressure today, any solid earnings miss could exacerbate the selling even further.

Meanwhile, an earnings beat could relieve all this bearish pressure over the last two days as traders may rush to get back long with these much cheaper prices.

Photo: Courtesy of Affirm