iRobot Option Traders Betting Holiday Rebound Continues

iRobot Corporation IRBT shares traded higher by 4.2% on Thursday but are still down 42.2% year to date heading into the final weeks of 2019.

Despite the 2019 weakness, several large option traders have made bullish bets on a year-end rally for iRobot.

The Trades

This week, Benzinga Pro subscribers received three option alerts related to unusually large trades of iRobot options:

• On Monday at 2:44 p.m. a trader bought 608 iRobot call options with a $48.50 strike price expiring on Dec. 20 near the ask price at 60 cents. The trade represented a bullish bet of $36,480.
• About two minutes later, likely the same trader bought another 1,645 of the same iRobot call options with a $48.50 strike price expiring on Dec. 20 at the ask price of 70 cents. The trade represented a bullish bet of $115,150.
• On Thursday at 9:23 a.m., a trader bought 532 iRobot call options with a $50.50 strike price expiring on Jan, 3 near the ask price at $1.323. The trade represented an $70,383 bullish bet.

Together, the three trades represented a total bullish bet of more than $221,000.

Why It's Important

Even traders who stick exclusively to stocks often monitor option market activity closely for unusually large trades. Given the relative complexity of the options market, large options traders are typically considered to be more sophisticated than the average stock trader.

Many of these large options traders are wealthy individuals or institutions who may have unique information or theses related to the underlying stock.

Unfortunately, stock traders often use the options market to hedge against their larger stock positions, and there’s no surefire way to determine if an options trade is a standalone position or a hedge. In this case, given the relatively modest size of the largest iRobot trades by institutional standards, they are unlikely to be institutional hedges in this case.

Trade War Optimism

The Roomba maker’s 2019 woes have come in large part to the ongoing U.S. trade war with China.

In October, iRobot reported a 20% drop in revenue, which the company said came after trade war tariffs forced it to raise prices.

“Despite the severity of US tariffs on robotic vacuum cleaners, and the direct and indirect disruptions they are having on US category growth, we remain committed to delivering exceptional value to consumers and are mobilizing accordingly,” CEO Colin Angle said of the disappointing numbers.

The Roomba price hikes came in response to a new round of 25% import tariffs that the U.S. imposed this year. When the price hike weighed on unit sales, iRobot decided to roll back to the original prices. If the tariffs remain in place, the pressure may now shift from revenue growth to margins and earnings in future quarters.

Given there has been no major company-specific iRobot news this week, the bullish bets are likely a play on a potential trade deal ahead of the looming Dec. 15 deadline for another round of U.S. tariffs on Chinese imports.

President Donald Trump tweeted Thursday that the U.S. is “very close” to a phase one trade deal with China, and sources told CNBC Trump is even willing to scrap the proposed Dec. 15 tariff hikes and cut some of the existing U.S. tariffs in half in order to reach a deal.

Benzinga’s Take

Given all of the calls purchased this week expire within the next three weeks or so, they're likely a short-term play on trade talks and nothing more. The Dec. 20 calls have a break-even price of $49.20, suggesting at least another 2% upside by the end of next week.

Do you agree with this take? Email feedback@benzinga.com with your thoughts.

Related Links:

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Photo courtesy of iRobot.