Some of the most successful teams in any level of baseball feature smart players that take disciplined at-bats rather than those who swing wildly at most pitches they see. It’s a similar concept in the investment market, which brings up the distinct case of ZipRecruiter (ZIP). Billed as the number one rated website for jobseekers, ZipRecruiter may be enjoying rising relevance.
Yes, U.S. economic growth accelerated to a robust 4.9% annual rate, per the Associated Press’ Christopher Rugaber. Also, the employment sector for the most part has been printing better-than-expected figures. And with consumers still opening their wallets – particularly for “funflation” events such as attending Taylor Swift concerts – it appears that employers don’t really need intermediaries to find qualified candidates.
Still, recent evidence points to a slowing economy, which would then trigger broader desperation in the labor market. Most conspicuously, the October jobs report revealed that while the nation added a decent 150,000 new employment opportunities, businesses slowed their hiring. Per the AP, the deceleration indicates that while the job market is resilient, headwinds such as high interest rates have cooled payroll acquisitive sentiments.
On the one hand, that’s not a great sign for ZIP stock as it indicates lower revenue addressability. But on the other hand, more people would be willing to seek out work through intermediaries or any other mechanism. Further, ZipRecruiter can help businesses find the ideal candidate and thus fight through the clatter of desperation as jobseekers deploy a shotgun approach to their application protocol.
Amid this perplexing narrative, the derivatives market seemingly points to a positive trajectory for ZIP stock. Should retail investors follow suit? As is usually the case, the narrative is complicated.
Traders Love ZIP Stock Call Options But There’s a Catch…
At first glance, ZIP stock options appear a no-brainer upside opportunity. Following the close of the Nov. 3 session, total volume for the job application platform reached 10,718 contracts against an open interest reading of 24,242 contracts. Further, the delta between the Friday session volume and the training one-month average metric came out to 1,803.73%.
However, the transactional data really stole the show. Call volume clocked in at an absolutely mercurial 10,702 contracts. By mathematical deduction, that left only 16 contracts on the put side. Investors don’t need to bother with the put/call open interest ratio because it’s utterly subterranean. So, with that many more investors buying calls than puts, ZIP stock should be an easy winner, right?
Here’s the thing about options volume: it only tells you the total number of options contracts traded. It doesn’t tell you how many entities were behind the actual transactions. Basically, it could be many individual retail investors or it could be a select few institutional investors. We don’t know unless we have more data.
Fortunately, that’s where Fintel’s options flow screener comes into play, which exclusively targets big block trades likely made by institutions. In other words, if it’s just one or two contracts trading hands, an options flow radar won’t even pick up the signal.
Therefore, access to derivatives flow could be crucial in facilitating informed decisions. Regarding ZIP stock options, an institutional investor (or investors) sold 10,527 contracts of the Mar 15 ’24 17.50 Call. Stated differently, the major party or parties decided to underwrite the risk that ZIP stock will not reach the strike price.
Closing at $11.75 on Friday, that’s a big risk for two reasons. First, ZIP stock is on a run, gaining nearly 13% in the trailing five sessions. Number two, if the option contract goes in the money prior to expiration, the buyer of the contract can choose to exercise. That leaves the call seller on the hook, especially if the transaction was conducted naked (i.e. without owning the underlying security).
A Perplexing Decision Awaits
To summarize the above options dynamic, it symbolizes a showdown between retail investors and the major market players. The former believes that ZIP stock will swing higher, thus bidding up shares. However, the latter is essentially betting that the recent rally will fall short. Otherwise, that’s a lot of money at risk (i.e. 10,527 contracts multiplied by 100 shares per every one contract).
To be sure, the retail folks have strong justification for their trade. With the labor market possibly loosening in the months to come amid rising economic pressures, desperation will rise. Thus, on a net basis, ZipRecruiter should be relevant. However, institutional investors have access to significant information and resources that the average Joe is locked out of.
That makes for a perplexing decision, unfortunately. So, what to do? Frankly, the institutions may be calling this right for now. Keep in mind that ZipRecruiter will disclose its third-quarter earnings report on Nov. 8. Also, the company has suffered revenue declines in the past few quarters and it’s not clear if management has been able to arrest the negative acceleration.
Again, with the institutions leveraging more and better information, I’m going to take the boring approach and stick with the alpha dogs.
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.
