How This Uber Options Trade Creates a Cheaper Entry Price

During their recent episode of the Value Options Letter and Acquirers Podcast, Travis and Carlisle discussed How This Uber Options Trade Creates a Cheaper Entry Price. Here’s an excerpt from the episode:

[Tim] It’s got some similarities to Amazon in that the margins are increasing quite substantially. The free cash flows are quite high and growing. It’s still growing at a rapid rate.

But the multiples come down a lot. And so it’s the cheapest it’s been on a price to free cash flow basis in quite some time. Once again, Toby, it’s that situation where earnings are coming out relatively soon.

So you have the perception of volatility in the stock. And so the premiums are pretty high. So once again, this is kind of a shorter term trade.

August 21st is the expiration. And the trade we did today, so this is 30 days out, is we sold a $62 put and we collected $75 of premium. So 75 cents a share.

And on this trade, once again, you’re targeting about 1.22% on capital, but it’s 14.9% annualised. And your worst case scenario is you’re going to own Uber, which I believe is trading at around 73-ish when we looked at this, but you’re going to own it at below 62. So you have a very large margin of safety.

So if you like the stock, this is a great way to manufacture a cheaper entry price into it. And worst case scenario, you’re getting a 15% annualised return and it’s a fairly short-term trade. So it’s another one we like on a high quality business.