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Barchart

Mark R. Hake, CFA

Shopify Stock Looks Cheap as Its FCF Rises Next Year - Buy LEAPS and Short OTM Puts

SHOP Shopify Barchart ITM

Shopify Inc (SHOP) reported strong Q3 free cash flow and higher FCF margins on Nov 12; management said this will continue in Q4. As a result, FCF should explode to $2 billion next year. Buying SHOP LEAPs (long-term call options) and shorting out-of-the-money SHOP puts in nearby expiry periods are good ways to play the stock.

SHOP closed at $108.49 on Friday, Nov. 15, up over 20% from the day before its Q3 earnings release on Nov. 11 ($89.99). Moreover, SHOP stock has been up over 100% in the last 4 months, when it bottomed at $52.66 on Aug. 6.

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