LKQ Has Large Option Traders' Attention After Big 2019 Run

LKQ Corporation LKQ is up 52.8% year to date despite a difficult global auto market.

On Tuesday, LKQ had the attention of several large option traders, but the action wasn’t clearly bullish or bearish in nature.

The Trades

Benzinga Pro subscribers received three option alerts related to unusually large trades of LKQ options:

• At 10:19 a.m., a trader bought 753 LKQ call options with a $37.50 strike price expiring on Feb. 21 near the ask price at 70.1 cents. The trade represented a $52,785 bullish bet.
• At 11:08 a.m., a trader sold 500 LKQ call options with a $37.50 strike price expiring on Feb, 21 near the bid price at 70.5 cents. The trade represented an $32,250 bearish bet.
• At 11:19 a.m., another trade of 500 LKQ call options with a $37.50 strike price expiring on Feb. 21 was executed near the spread midpoint at 72.5 cents. The trade represented a $36,250 neutral bet.

All together, the three trades represented a net bearish bet of around $20,535.

Why It's Important

Even traders who stick exclusively to stocks often monitor option market activity closely for unusually large trades. Given the relative complexity of the options market, large options traders are typically considered to be more sophisticated than the average stock trader.

Many of these large options traders are wealthy individuals or institutions who may have unique information or theses related to the underlying stock.

Unfortunately, stock traders often use the options market to hedge against their larger stock positions, and there’s no surefire way to determine if an options trade is a standalone position or a hedge. In this case, given the relatively small sizes of the LKQ trades on Tuesday morning by institutional standards, they are unlikely to be hedges.

2020 The Year Of Auto Parts?

LKQ traders may have mixed feelings heading into 2020 given the stock has outperformed so much in 2019. Some traders are likely looking to take year-end profits on large gains, while others are hoping for more upside ahead next year given bullish recent commentary from Wall Street.

CFRA analyst Garrett Nelson recently said he's bullish on LKQ heading into 2020 given its recent balance sheet improvements and its aggressive share buyback program.

“We continue to consider LKQ one of the industry’s most attractively-valued names, and buybacks/debt paydown should help support EPS growth despite top-line and margin-related headwinds, noting that LKQ’s average Q3 share count was 3.6% lower than the year-ago quarter,” Nelson said.

Bank of America estimates the total number of vehicles on the road that are between six and 10 years old began to rise in 2019 after shrinking for the past decade. However, that number should jump by 11% in 2020, a trend that should benefit auto parts stocks.

Benzinga’s Take

Between Monday and Tuesday, there were seven total LKQ option alerts related to unusually large trades, but there is clearly no smart money consensus about where LKQ us headed in the next couple of months. Three trades were calls purchased at or near the ask, three were calls sold at or near the bid, and one was a trade at the midpoint.

The stock traded around $36.19 per share at time of publication.

Do you agree with this take? Email feedback@benzinga.com with your thoughts.

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