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Unusual Options Activity: Uber (UBER)

Posted: 07 Nov 2019 03:00 AM PST

In-the-money call buying suggests upside.

March 2020 $25 call options on Uber (UBER) saw over 2,500 contracts trade, a 13-fold increase in volume from the previous open interest of 192. With shares around $26.50, the option is about $1.50 in-the-money, and should move dollar-for-dollar higher with shares in the next 134 days before expiration, less the time premium.

The buying comes after the company reported good earnings—but that it also burned through substantial cash—sending shares to post-IPO lows.

An in-the-money bet is more expensive than out-of-the-money, but it also is a conservative options trade that already has some value to it, and is likely to retain that value. There's still a lot of leverage too: Should shares go to their old high of $47, the $35 option would be worth $12, nearly triple the current price.

Action to take: Wait for now on any Uber trade, both on the shares and on the options. Besides reporting earnings this week, the company just getting into its IPO lockup period expiring. There may be more selling pressure as insiders start to sell their shares, to take advantage of the fact that the company is now public. That could mean shares may stay low for a while, even if the company continues to do well operationally. Even an in-the-money option can suffer if the share price declines further, so look for an opportunity should shares drop a further 10-15 percent in the coming weeks.

Insider Trading Reports: Universal Insurance Holdings (UVE)

Posted: 07 Nov 2019 03:00 AM PST

Cluster of insider buys after earnings.

Stephen Donaghy, CEO of Universal Insurance Holdings (UVE) recently picked up 5,000 shares after the company reported earnings, shelling out over $137,000 to do so. He was joined by director Sean Downes, who has made multiple buys of around 10,000 shares so far this month, totaling over $300,000.

A look at insider buying shows a series of sales when shares topped $40 back in 2018, followed up by lesser sales as the price declined.

Now insiders are only buyers of shares, as shares appear to be heading up again, a sign that insiders know when shares are both undervalued and overvalued, and when to make swing trades for big profits.

Action to take: Shares look attractive up to $30, given the company valuation of just 11 times earnings and with a 2.3 percent dividend yield. With an old 52-week high of $45, that's a clean 50 percent return just to get back to the old highs. With the company’s heavy exposure to hurricane policies, and with hurricane season officially ending November 30th (but essentially over now), the company is unlikely to face any downside risks for the next few months.

Speculators may want to look at the May 2020 $30 calls. Trading at just $2.25, or $225 per contract, they're a cheap bet on shares heading higher. On a move to just $35, the option would be valued at $5 at expiration, or more than double the current price.

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The Top Reasons Why Online Stock Trading Is Common In the USA

Posted: 07 Nov 2019 03:00 AM PST

Why the United States reigns supreme in stock trading compared to the rest of the world.

Online investing is popular—and still growing. With a number of brokerage firms slashing their costs to zero, it's easy to see why it continues to grab market share from traditional brokerage firms.

In the United States in particular, there are a number of reasons why trading stocks online is so popular, and so common.

First, online stock trading is based off of technology—and American culture embraces technological development faster than the rest of the world. The United States developed the internet out of ARPANET, the Advanced Research Projects Agency Netwrok, largely as a military project. However, the developers used the same tools to create a way of communicating digitally, and the commercial aspects led to the gradual creation of the Internet.

As the internet, short for integrated network, proliferated, one way of utilizing it came in the form of trading stocks. The internet could even provide for live or near live prices for stocks, something that replaced the ticker tape machine or having to sit in front of CNBC waiting for a price change in a specific stock to go by. With the faster data and ability to bypass a traditional broker, it's no wonder that the American embrace of technology allowed online trading to take off.

One estimate puts the total number of online brokerages at 12 in 1994, to more than 140 by the end of 2000 as the internet bubble peaked.

Second, online stock trading is so popular in the United States thanks to its cultural legacy of trading and speculating—something the rest of the world simply doesn't have in as much abundance. For instance, 52 percent of Americans have some kind of exposure to the stock market, whether through a brokerage or a work program like a 401(k) or 403(b).  When hearing these statistics, most would lament that nearly half the population is missing out on the wealth-creating potential of the market.

However, those numbers are high relative to the rest of the world. Germany, another advanced industrialized nation with GDP per capita in the top 10 globally, only sees about 20 percent of its population with exposure to the stock market. The culture of hard work and thrift in Germany translates into an investor class more interested in the certainty of bonds rather than the uncertainty of stocks. In some years, this caution pays out well, but in most years, it means lagging returns relative to those that invest in stocks.

Finally, there's the cost. Relative to trading with a traditional brokerage, which needs to have ample staff to handle calls and paperwork, online trading bypasses these gatekeepers, and in so doing has always had a built-in price advantage. While early online trading platforms started from low-cost brokerage providers like Charles Schwab, these brokerages were able to get costs down even further by not having the need for analysts or other research staff, allowing individual investors who had done their own research to benefit from these trends.

American ingenuity has always been about pushing prices down, so it's no surprise that the cost of trading plummeted as the cost of computing did as well—and why it became so commonplace in the home.

In short, the American embrace of stock market speculation, improving technology, and lowered costs, have led to the rise in the popularity of online trading.

The Road Ahead

With online brokerages now slashing their trading costs to zero, what can the trader of tomorrow expect?

For starters, many online brokerages are also offering courses and videos to help investors improve their performance. Rather than get away from the transactional nature of a few stock traders, brokerages recognize that developing long-term relationships in the digital age requires new tools—ones that ordinarily would have come from the aid of a full-time, flesh-and-blood broker.

These tools include built-in screens to find a variety of investment opportunities that fit an investor's specific criteria. It can include fundamental and technical data, as well as order flow data for more advanced traders looking to ensure they can get easily in and out of a trade.

With the addition of other investment tools such as options, futures, commodities and foreign exchange, brokerage accounts offer a wide scope for today's investors at a low price—and all for a few clicks. Expect the double-digit growth in the space to continue.
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