At a cursory glance, Rent the Runway (RENT) may seem an enticing opportunity for both consumers and investors alike. An e-commerce platform, the company allows its users to rent, subscribe or buy designer apparel and accessories. However, with rising pressures – most notably stubbornly high inflation – impacting the consumer economy, RENT stock hasn’t offered a pretty picture.
Indeed, it’s downright ugly. Since the beginning of this year, RENT stock fell a staggering 50.51%. In the trailing one-year period – following a stomach-churning rollercoaster ride – stakeholders were left with a loss of 61.48% for their troubles. Since its public market debut, Rent the Runway has lost more than 91% of equity value. By arguably any rational standard, investors should flee from this enterprise.
It’s not just the red stains on the price chart that warrants caution. According to the Barchart Technical Opinion indicator, RENT stock is an 88% strong sell. While the short-term framework may suggest a coin-toss odds of rising higher, the medium term and long-term indicators point to continued distress for the fashion-centric e-commerce firm.
Just as worrying, the underlying circumstances for the consumer economy don’t appear to be improving. Recently, Americans’ credit card debt exceeded the $1 trillion level, a dubious record. As Barchart contributor Amy Legate-Wolfe mentioned, an Experian study found that the “average consumer credit card debt expanded from $5,315 in 2020 to $5,910 in 2022 - an increase of 13.2%.”
What's more, Legate-Wolfe added, “average debt levels increased regardless of credit score, with ‘poor’ and ‘excellent’ rated borrowers reporting the largest percentage increases.”
While there are many ways to interpret high credit card debt, the inescapable reality is that if the brown matter hits the proverbial fan, circumstances can go awry for consumer discretionary plays. Yet the alpha dogs seemingly don’t want to give up on RENT stock.
RENT Stock Lights Up the Options Screener
Following the close of the Sept. 5 session, RENT stock represented the top highlight in Barchart’s screener for unusual stock options volume based on volume change. Specifically, total volume reached 18,044 contracts against open interest of 18,416. Further, the delta between the Tuesday session volume and the trailing one-month average metric came out to 1,570.74%.
Drilling down to the transactional data, call volume hit 16,864 contracts versus put volume of only 1,180 contracts. This pairing yielded a put/call volume ratio of 0.07. Notably, Barchart points out that the put/call open interest ratio similarly sits at a low (presumably bullish) ratio of 0.11.
Of course, investors need to be careful about extracting wholesale assumptions based on the headline data. In part, that’s because selling (writing) puts and calls generally feature the opposite implication of buying said contracts. However, in the case of RENT stock, the headline figures may be taken at face value.
Interestingly, Fintel’s options flow data – which focuses on big block trades likely made by institutions – features mostly bullish transactions for options expiring on Sept. 15, 2023 and Jan. 19, 2024. Specifically, institutional traders bought $2.50 calls expiring on the former date and bought $2.00 calls expiring on the latter.
However, it’s the volatility smile or the implied volatility (IV) plotted out at various strike prices that warrants special attention. At the strike price of $2.50, IV comes in at 1.49. At $5.00, the IV jumps to 2.95. At $7.50, the IV leaps yet again to 3.74. While IV doesn’t specify a directional trajectory, it does suggest significant activity at the impacted strike prices.
To extract more insight, I looked at unusual options activity for the $5 strike.
Significantly, volume for the $5 calls expiring Jan. 19 hit 82 contracts against open interest of 1,412 contracts. What’s more, the bid-ask spread as represented by the midpoint price is a whopping 100%. Nevertheless, traders are actively engaging this call option, which may indicate strong (bullish) conviction.
One Heckuva Risk
Personally speaking, RENT stock may be too rich for my blood, even with the context of extreme speculation. Again, I go back to the broader consumer fundamentals. Yes, you can argue that racking up so much debt indicates confidence in U.S. exceptionalism and resiliency. However, pride also comes before the fall. And you don’t want to be financially vulnerable during a widescale downturn.
At the same time, you also have to respect the institutional traders and the broader smart money community. It’s not just about their acumen. Rather, they have resources and information that the average retail investor lacks.
So, if you’re willing to gamble on something, RENT stock could be interesting. You’ll at least have the comfort of knowing that the big dogs are trading alongside you.
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.
