During the COVID-19 onslaught, Hertz (HTZ) became an unexpected emblem of the economic turmoil, its bankruptcy jolting the car rental sector. Yet in a twist of fate, Hertz’s resurgence from Chapter 11 bankruptcy became symbolic of resilience. The re-emergence highlighted not just a business recovery but the ability to ride the wave of “revenge travel.”
Initially, as the SARS-CoV-2 virus dominated headlines, travel was a distant thought. But as fears waned, a suppressed yearning for travel unleashed. As borders reopened, the once-shuttered travel industry boomed, with HTZ stock benefiting handsomely from this resurgence.
However, the narrative had its shadows. While health concerns began receding, a new concern emerged: ballooning inflation. Driven by measures to counteract the pandemic's economic fallout, inflation began its upward trajectory.
This year, even with some consumers becoming more frugal, the travel sector remains robust. Yet, a pressing question emerges for investors: can the allure of revenge travel offer long-term support to HTZ stock? It's a quandary that merits keen attention.
Transitioning from the broader backdrop of Hertz's position in the industry, there are specific market dynamics to consider, particularly in the realm of stock options.
Unusual Options Volume Appears to Favor HTZ Stock
At the conclusion of the Sept. 22 session, Barchart's screener flagged HTZ stock for unusual options volume. The metrics were intriguing: the total volume clocked in at 27,158 contracts against open interest of 154,489. What's especially noteworthy is that the volume from this particular session surged to a staggering 608.72% when compared to the trailing one-month average.
Breaking down the transactions, call volume registered at 16,006 contracts, overshadowing the put volume of 11,152 contracts. This results in a put/call ratio of 0.7, a figure that typically leans bullish. Yet, it's essential to acknowledge that the options market has its intricacies, making it challenging to definitively gauge overarching sentiment from these numbers alone.
Further insights come from Fintel's options flow screener, emphasizing substantial block trades, likely driven by institutional players. One transaction in particular stood out: a deal involving 601 contracts of the Dec. 15 ’23 12.50 Call, with a hefty premium of $100,082. Considering HTZ stock's close at $13.48 in the open market, this strike price at $12.50 suggests an expectation of an upward movement, at least from the perspective of this specific trader.
Technically speaking, in-the-money (ITM) options – especially those derivatives that are particularly deep ITM – command relatively large premiums. Therefore, assuming a straight position in the call (meaning that it’s not part of a complex hedging strategy or multi-legged approach), the stakeholder needs to see a robust swing upward in HTZ stock for this particular option to be profitable.
However, it's vital to contextualize this optimism. Over the past month, HTZ stock witnessed a nearly 22% dip. While some traders are indeed positioning for potential downturns, the sentiment, on the whole, appears to tilt positive for the Sept. 22 session.
Heavy Risks Still Prevalent for Hertz
The allure of HTZ stock as a bullish proposition cannot be denied. Yet for those venturing into this territory, it's imperative to tread with a judicious blend of optimism and caution. A pivotal analytical tool in this context is the implied volatility (IV) curve associated with HTZ options.
At its core, IV serves as a predictive barometer, forecasting the potential price oscillations of an underlying asset. Imagine it as the meteorological forecast for stock prices, hinting at possible storms or placid conditions. Yet like weather predictions, IV doesn't offer definitive certainties. While it indicates heightened activity around certain price points, it stops short of confirming whether such a flurry will indeed transpire or which direction it might lean towards.
Deciphering the form of the IV curve can be illuminating. For HTZ stock options, a discernible skew to the left emerges. In layman's terms, as strike prices diminish, the IV amplifies more robustly than it would in the converse scenario where strike prices rise. This pronounced leftward tilt isn't just a quirky numerical observation; it's emblematic of traders girding themselves for potential downturns.
The rationale behind such a protective stance isn't far-fetched. With the consumer economy displaying pronounced fragility, a defensive posture towards HTZ is not just shrewd; it's perhaps essential. At the epicenter of this complex narrative is the juxtaposition of the revenge travel sentiment against the backdrop of looming macroeconomic challenges.
To distill this into actionable insights: HTZ could indeed be a viable bullish play, as evidenced by the sentiments of some seasoned market players. Yet the very same bullish proponents might be concurrently shielding themselves from downside risks. Retail investors, as they navigate these turbulent waters, would be well-advised to exercise similar multifaceted prudence.
On the date of publication, Josh Enomoto did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
