Upstart Unusual Flow Analysis

February 1st,  2022

$UPST Upstart

Summary: 

  • Upstart is currently profitable and is experiencing triple-digit revenue and earnings growth.
  • Upstart’s business model could have huge margins and the potential market for Upstart’s products and services are huge.
  • Upstart Holdings, Inc. operates a cloud-based artificial intelligence (AI) lending platform. The company’s platform aggregates consumer demand for loans and connects it to its network of the company’s AI-enabled bank partners. Its platform connects consumers, banks, and institutional investors through a shared AI lending platform.
  • These contracts with banks typically have 12-month terms and automatically renew.
  • Upstart generated $800 million of revenue in 2021, blowing away its initial estimate of $500 million.
  • Upstart dealership lending has increased from 91 in Q3 2020 to 291 in Q4 of 2021.

Click here to read our original analysis on Upstart

 

Unusual Flow Analysis

Let us start by diving into the Option Flow we have been seeing for this week.

Thank you to Unusual Whale‘s Option flow data service, this analysis was super easy to make.

All this data is as of February 1st, 2022.

  • We noticed there has been a big spike in call option volume over the last week while the volume on the put options has stayed pretty flat.
  • From January 25th – to February 1st; the daily call option volume has grown from39,087 to 84,539, nearly a 116% increase.
  • During the same period, daily put has actually decreased from 28,037 to 23,319.
  • At first glance, this doesn’t necessarily mean that all those call options being traded mean bullish price movement nor does the put options being traded represent bearish price movement. But we have to start somewhere.

Historical flow – UPST, 02/01/2022

If we continue to analyze and I was curious to see where the money was flowing in for the next two weeks so I only focused on options expiring on February 11th and February 18th; here is what I found –

  • More than 50% of the premium is actually bullish
  • More than 50% of the volume is actually bullish
  • Both calls and puts seem to be target Upstart to be trading around $120 and $150, but mainly $125 and $130

I also spotted another interesting trade just minutes before the market closed;

  • We see two trades and I assume they are from the same trader since they came in at the same time.
  • One trade is for a put credit being built by selling the $135 puts and buying the $130 puts for February 18th and then the same trade but for February 11th.
  • Confusing I know, but these two trades both represent a bullish outlook on the stock price.

Here is the breakdown of how a put credit spread trade works using the 130 / 135 put credit spread for 02/18/20222

  • You sell a put option with a strike price of $135 and collect a premium of $25.6
  • You buy a put option with a strike price of $130 and pay a premium of $22.03
  • The difference between the premium you received vs what you paid is $3.57
  • This translates to you receiving $357 per contract so in this case $17,875 in premium for this trade.
  • The max loss on this trade is $142.5 per contract so in this case $7,125.
  • For you to be able to keep the full premium, the stock price of Upstart needs to be above the strike price you sold – which in this case will be $135.
  • At the time of me typing this up, the stock price of Upstart was trading at $117.33.
  • Takeaway – the big whale is betting on the $UPST to be trading higher than $135 by either February 11th or 18th

Tiger Wolf Capital – Put Credit Spread Breakdown