By CCN: The first earnings report for Uber stock is about to be released, and UBER is expected to have lost over a billion dollars in Q1.
This loss comes despite an expected 20 percent revenue increase to $3.07 billion over last year’s same quarter.
The total value of shares shorted is $1.5 billion, a fraction of the $69 billion market value of Uber stock.
As Uber stock shares get scarce to borrow, short sellers will incur a fee for the privilege.
That fee is a floating interest rate charged against the value of Uber stock shares borrowed, and could run anywhere from 1 to 300 percent, depending on demand.
The market was caught flat-footed by the lousy IPO debuts of UBER stock and LYFT stock. UBER stock closed Tuesday at $40.95, down 9 percent from its IPO price.
LYFT stock has stumbled more, down more than 20 percent from its IPO price of $72, settling at $56.89.
Hype over the unicorn valuations of UBER stock and LYFT stock led investors to expect sharp increases in both stocks after their IPOs. Instead, hype caught up with the rideshare companies.
Their financial statements show both companies losing a lot of money, and their business models are not self-sustaining. Both UBER and LYFT subsidize every ride as they fight over market share.
How might an investor bet against the stock if shorting it is either too risky or too expensive?
One alternative is to use put options.
A trader is effectively shorting the stock using a put option, described here.
You can also learn how to buy puts here:
What put option trade would I consider?
Buy an UBER stock put option at the $40 strike price with a September 20th expiration date for $4.30 per share, or $430 for 100 shares.
If the stock closes at $35.70 on September 20th, I will have put 100 shares to the put seller at $40, and earned $4,000. Subtract the $430 put cost, and I will end with having effectively shorted UBER stock at $35.70, and effectively covered my short at the same price, for a net gain of zero.
If the stock closes below that price, I will make money, since I will have effectively covered his short at that lower price.
If the stock closes above that price, I will lose money, since I will have effectively covered his short at that higher price.
It all depends on how much you want to spend for this privilege, and the date you choose. Regardless, Uber will still be losing money then.
This article was edited by Samburaj Das.
Last modified: May 29, 2019 05:34 UTC