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Beyond Meat Option Buyer Makes Big Bet Ahead Of Earnings

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Beyond Meat Option Buyer Makes Big Bet Ahead Of Earnings

Investors have had quite the appetite for Beyond Meat Inc (NASDAQ: BYND) since its IPO a little over a month ago. On Thursday, investors get their first taste of Beyond Meat's earnings when the company reports first-quarter numbers after the market close, and at least one option trader is making some huge bets Beyond Meat shares will have a big reaction to the report.

The Trades

On Thursday morning, Benzinga Pro subscribers received three options alerts within two minutes time at around 8:50 a.m.

The trader first made two identical large purchases of call options at a $110 strike price that expire on Friday. The 1,980 call options were purchased at the ask price of $2.40 and represent a $475,200 bullish bet at a break-even price of $112.40. The options only turn a profit if Beyond Meat shares finish Friday's session about 12.8 percent higher than where they were trading at around noon on Thursday.

About two minutes later, likely the same trader bought another 503 Beyond Meat call options expiring on Friday. This time, the trader bought the $95-strike contracts at the ask price of $8.922. The second trade represented an additional $447,844 bullish bet.

Together, the three bullish trades represent an aggregate $923,084 bet that only pays off if Beyond Meat shares see a big post-earnings surge on Friday.

Options Insight

Many stock traders watch the options market daily to gain insight into to what options traders are thinking. Even if they aren’t trading options themselves, stock traders stay on the lookout for unusual option trading activity.

Options traders are typically seen as more advanced than the average stock trader given the sophistication of the options market. The larger the order, the more traders pay attention to what could be an institution or wealthy individual or industry insider with unique insight into a stock.

Institutional Hedge?

On the surface, the bullish options trades may seem like good news for Beyond Meat investors. While a $923,083 bullish bet isn’t particularly large for an institution, the manner in which the trades were executed suggests there’s a chance the calls represent a hedge on a large short stock position against Beyond Meat.

Stock traders often use the options market to hedge larger stock positions. It can sometimes be difficult to determine if a large option trade represents a trader’s true sentiment toward the underlying stock, but there are clues to watch for.

In the case of Beyond Meat, the fact that the first large order was broken into two smaller identical trades is a sign that it could be an institution trying not to be noticed. Institutions often break large orders into many small orders so they don’t draw attention to their trading activity.

If an institution is responsible for the trading activity in Beyond Meat options, they may continue buying small blocks of call options throughout the afternoon depending on the size of their short stock position in Beyond Meat. If the trades are a hedge, it may be a bad sign that at least one institutional trader is expecting an earnings miss and/or a sell-the-news market reaction on Friday.

Beyond Meat's stock traded around $99.60 per share at time of publication.

Related Links:

A Look At Some Unusually Large Options Trades In Dropbox

How To Read And Trade An Options Alert

Photo courtesy of Beyond Meat.

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