Uber Technologies (UBER) – Trade Idea

Company Description

Uber Technologies, Inc. provides a platform that allows users to access transportation and food ordering services. The Company operates through two segments: Core Platform and Other Bets. The Core Platform segment consists of Ridesharing and Uber Eats. The Other bets segment consists of Uber Freight and New Mobility platforms. Ridesharing refers to products that connects consumers with drivers who provide rides in a variety of vehicles, such as cars, auto rickshaws, motorbikes, minibuses and taxis. Its Uber Eats platform allows consumers to search for and discover local restaurants and order meals through online. Its Freight platform creates a transparent and on-demand marketplace that connects shippers and carriers. New Mobility product that provide consumers with access to rides through a variety of modes, including dockless e-bikes and e-scooters. Source: Reuters.

Chart

Open Interest

Trade Idea

Our Thinking:

  • The relationship between supply and demand is one of the core tenets of economics and financial markets. When supply rises, prices tend to fall, and vice versa. Uber Technologies common shares are about to face that economic reality. Why? UBER’s so-called stock lockup agreements will soon expire on Wednesday 6 November.

  • Uber currently has a public float of just over 733 million shares. Once the lockup expires on 6 November, up to an additional 948.7 million shares could enter the public market (S-1 filing). What does this mean? The number of tradeable shares will more than double overnight.

  • Early (large) investors have already suggested they could start to sell  their stakes in UBER once the lockup ends. To make matters worse, the company has quickly lost credibility among investors after the appalling performance since going public.

  • The number of shares to enter the market once the lockup expires is equal to roughly 94.8x the stock’s average daily volume, this leads us to believe that the market will not be able to fully absorb the pending overhang of supply entering the market. In other words, we believe further downside is to be expected.
     

Trade structure

SideQtyExpStrikeType
Sell117 Jan33Put
Buy217 Jan31Put

Notes:

  • Uber Technologies, Inc. is expected to report earnings on 11/04/2019 after market close. This is two days prior to the expiration of the lockup agreements.  

  • Traders may want to close the trade or extent duration in early December to maximize the payout profile / mitigate downside risk of the 1×2 put backratio spread as theta (time) decay can be significant. 

PnL Graph

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