Investor Seizes $39M Profit from Zillow’s Stock Surge with Bullish Options Bet

Summary

-A sophisticated Zillow (NASDAQ:) investor has strategically profited from the company’s recent stock jump, yielding close to $39 million in profits from an aggressive call options bet placed at the end of October.

-Despite the 525% gain from selling $45 call options as Zillow’s stock skyrocketed from roughly $38 to $58, this investor reinvested more than half of their windfall into a new bullish bet.

-The new bet is based on the purchase of call options that will expire in May, giving the investor the ability to acquire an additional 5.1 million shares at $65 per share. This strategy indicates a strong belief in a further 12% increase in Zillow’s Class C shares from their present price around $58.

-There has been a substantial surge in options activity on Zillow, reflecting an increase in bullish sentiment on the real estate market. This underlines the investor’s strong faith in Zillow’s continued growth potential.

Market Overview

Zillow’s success reflects a wider rise in the housing market, fuelled by the belief that mortgage rates have reached their peak. Consumers are keeping an eye on Federal Reserve interest rate decisions which could influence mortgage rates, and in turn, the home buying market. This has caused surges in bullish sentiment on real estate, as reflected by Zillow’s surge.

Implications of the bet

The sophisticated investor cashed in $39 million from a well-timed call options bet as Zillow’s shares surged by 60%. Even after gaining substantially, the investor has reinvested in a new bet, buying new calls for an additional 5.1 million shares at $65 each. This new bet suggests a further climb of about 12% in Zillow’s share price, extending the rally to continue in 2023. The increase of call volume on Zillow, suggests a strong belief in continued momentum in the housing market.

Looking Ahead

The large bet depends on an accurate prediction of stable mortgage rates and potential Federal Reserve easing. A decrease in optimism or new rate rises could slow down Zillow’s momentum and expose the new options bet. Therefore, a broader housing market trajectory remains essential for the success of this aggressive plan.

Investor Strategy and Impact

Chris Murphy, Co-Head of Derivative Strategy at Susquehanna International Group, has noted that the investor, while securing sizable profits, has hinted at continued bullish confidence on Zillow’s future prospects. In one clearly visible impact of the investor’s strategy, Zillow’s options market has seen the call volume soar to 97,000 contracts – a striking contrast to an average of only 9,900 over the past 20 days. This trading pattern underscores the investor’s powerful belief in Zillow’s growth potential in the coming months.

From a trading perspective, any movements in Zillow’s stocks due to these strategic plays could impact other correlated assets in the market, presenting opportunities in Forex and other markets.

Read more about this development on Quiver Quantitative

PIP Penguin
Logo