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Finding Its Stride? Option Trader Makes Big Bet Slack Rally Has Legs

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Finding Its Stride? Option Trader Makes Big Bet Slack Rally Has Legs

After its highly anticipated direct listing back in June, Slack Technologies Inc (NYSE: WORK) shares are down 27.1% in the past three months. Fortunately for Slack bulls, at least one larger option trader is betting the stock will bounce sometime in the next month.

The Trade

On Monday morning, Benzinga Pro subscribers received an option alert related to an unusually large Slack trade.

At 10:41 a.m., a trader bought 526 Slack call options with a $27 strike price expiring on Nov. 15 near the ask price at $1.25. The trade represented an $65,750 bullish bet.

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 modest size of Monday’s Slack option trade by institutional standards, it’s unlikely to be institutional hedging.

Slack Finding Its Stride?

With the stock now trading slightly below its $26 direct listing price, the strike price of the calls purchased on Monday suggests 9.2% upside in the next month given their breakeven price is $28.25.

For months, Slack investors have waited for the stock to gain traction in the market, but disappointing guidance has kept the stock trapped in a bearish trend.

In the past two weeks, Slack has finally started to get some love from Wall Street. On Sept. 27, Barron’s said Slack has been unfairly punished for the shortcomings of other recent tech IPOs, and the sell-of has created a buying opportunity. Josh Brown said on CNBC last week he's long Slack and has been buying the stock under $30.

Benzinga’s Take

Monday’s largest Slack option trade is noteworthy given that it expires less than six weeks from now. The trader evidently thinks Monday’s momentum will continue in the near term and propel the stock back into the high $20s by mid-November.

The stock traded around $26.21 per share at time of publication.

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

Related Links:

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How To Read And Trade An Options Alert

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