©Reuters.Betting Big on Real Estate: Investors’ Profitable Zillow Options Play
Quiver Quantitative – With a strategic move, savvy investors in Zillow (NASDAQ:) took advantage of the company’s recent stock price rally, netting nearly $39 million in profits from a bullish options bet initiated in late October. It has come true. This investor initially obtained a call option, giving him the right to purchase approximately 3.4 million shares of Zillow stock at a strike price of $45 per share. The bet paid off in spades, with Zillow stock up 60% in the last two months of the year, driven in part by a broad rally in the residential real estate sector as mortgage rates showed signs of reaching new highs. .
As Zillow’s stock price soared from about $38 to $58, investors took the opportunity to sell the $45 call option for a whopping 525% profit. After this favorable exit, investors reinvested more than half of their profits into new bullish positions. This includes purchasing a call option expiring in May that would allow it to buy an additional 5.1 million shares at $65 per share. This new bet implies a confident prediction that Zillow’s Class C shares will rise another 12% from their current levels near $58.
Market Overview: -Zillow soars, reflecting broad-based home price gains, driven by belief that mortgage rates have peaked. -The Fed’s interest rate cuts and potential lower mortgage costs are being watched as a catalyst for continued homebuying. -Zillow options trading increased sharply, reflecting growing bullish sentiment toward real estate.
Key Points: – Zillow investors made $39 million in profits by betting on well-timed bullish call options. -The option to buy 3.4 million shares at $45 soared after Zillow’s 60% jump. -Investors exited with big profits, but doubled down again, buying 5.1 million new shares at $65. -The new bet hinges on whether Zillow prices rise another 12% from around $58, extending the 2023 rally. – Increased call volume on Zillow confirms confidence in continued momentum in the housing market.
Looking ahead: – Investors’ large bets rest on accurately predicting the stability of mortgage rates and the likelihood of Fed easing. -If optimism fades or rates rise again, Zillow’s momentum could weaken and new options bets could be exposed. -The broader trajectory of the housing market remains critical to the success of this bold strategy.
Chris Murphy, co-head of derivatives strategy at Susquehanna International Group, said that although the investor has secured a large profit, reinvestment remains bullish on Zillow’s prospects. It pointed out. Developments in the real estate market are being closely watched, particularly due to expectations regarding the Federal Reserve’s interest rate decisions, which could further impact mortgage rates and, by extension, the home purchase market.
This investor’s strategy had a noticeable impact on Zillow’s options market. This trading activity significantly increased the number of calls to his 97,000, compared to a 20-day average of just 9,900. This trading pattern confirms investors’ strong belief that Zillow can continue to grow in the coming months.
This article was originally published on Quiver Quantitative