Uber’s Stock May Rise Following Results On Massive Volatility

Uber Technologies Inc. (UBER) will be reporting fourth quarter results on February 6 following the close of trading. The stock has had a big turn around since reporting third quarter results, rising by almost 50% since November 14. It seems that some traders see the stock rising even more in the weeks following results, pushing the shares above $40 for the first time since August.

The equity has rebounded substantially since the third quarter as the prospects for the company appear to be on the mend. Additionally, with the lock-up period now over and the former CEO, Travis Kalanick selling nearly his entire stake in the company, it seems as if a big weight has been lifted.

Betting Shares Rise

The options for the February 21 $40 calls have been on the rise in recent days, up by almost 8,100 contracts. The trading data shows that the majority of these calls have been bought and are indicating a bet that the stock rises by the expiration date. The call contracts trade for roughly $1.60 per share as of February 4, implying a breakeven price for the equity of $41.60, a gain of almost 8% from the stock’s current price of around $38.80.

Bullish Trends

The chart is also bullish and suggests the shares rise as well, to around a price of $40.60. That is where the next significant level of technical resistance for the stock awaits, and should the shares be able to rise above that price; they could climb to as high as $42.50, a gain of almost 10%. The stock has broken free of a significant bullish reversal pattern known as a falling wedge which formed from early August through mid-December. The relative strength index is also trending higher, and it too, suggests that the stock continues to rise over the longer-term.

Volatility Ahead

Volatility around the earnings is expected to be high, based on the long-straddle options strategy which is the purchase of one put and call at the same strike price and expiration date.  Currently, the strategy suggests that the stock rises or falls by about 10.7% from the $39 strike price by expiration on February 21. It places the stock in a trading range of $34.85 to $43.15 following the results.

A Critical Quarter

Analysts see the company posting revenue of $4.05 billion in the quarter, which is up from third quarter revenue of $3.81 billion, and better than the $2.97 billion reported a year ago. Meanwhile, the company is estimated to have lost around $0.52 per share, which is wider than the $0.44 per share it lost in the third quarter.

This will be a big round of quarterly results for Uber, more so because the company will lay out its 2020 guidance and vision for a road to profitability. The company already noted on its third quarter conference call its sees total company EBITDA profitability for the full-year 2021. Currently, analysts forecast revenue will rise by 29.2% in 2020 to around $18.2 billion, with the company’s loss being slashed nearly in half to $1.51 per share.

There is no doubt that this is potentially a massive quarter for Uber, and it seems that some investors are betting they deliver in a big way.

Michael Kramer is a financial market strategist and the portfolio manager of the Mott Capital Thematic Growth Portfolio.

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