Betting Big on Real Estate: Investor’s Lucrative Zillow Options Play

Quiver Quantitative – In a strategic maneuver, a savvy investor in Zillow (NASDAQ:) has lucratively capitalized on the company’s recent stock surge, realizing approximately $39 million in profits from a bullish options bet initiated in late October. This investor initially acquired call options, granting the right to buy around 3.4 million Zillow shares at a strike price of $45 each. The bet paid off handsomely as Zillow’s stock experienced a 60% jump in the last two months of the year, partly fueled by a broader rally in the residential real estate sector amid signs that mortgage rates might have reached their peak.

As Zillow’s shares soared from about $38 to $58, the investor seized the opportunity to sell the $45 call options, benefiting from a remarkable 525% gain. Following this lucrative exit, the investor reinvested more than half of the profits into a new bullish position. This involved purchasing call options expiring in May, which would allow them to buy an additional 5.1 million shares at $65 each. This new bet implies a confident forecast of a further 12% rise in Zillow’s Class C shares from their current level around $58.

Market Overview:
-Zillow soars, mirroring broader housing rally, fueled by belief mortgage rates have peaked.
-Fed rate cuts and potential mortgage cost dip eyed as catalysts for continued home buying.
-Options activity surges on Zillow, reflecting heightened bullish sentiment on real estate.

Key Points:
-Zillow investor cashes in on $39 million profit from well-timed bullish call options bet.
-Options, allowing purchase of 3.4 million shares at $45, skyrocketed on Zillow’s 60% surge.
-Investor exits with substantial gain but doubles down, buying new calls for 5.1 million shares at $65.
-New bet hinges on further 12% Zillow price climb from around $58, extending 2023 rally.
-Increased call volume on Zillow underscores confidence in continued housing market momentum.

Looking Ahead:
-Investor’s sizable wager hinges on accurate prediction of mortgage rate stability and potential Fed easing.
-Waning optimism or renewed rate hikes could dent Zillow’s momentum and expose new options bet.
-Broader housing market trajectory remains crucial for the success of this audacious play.

Chris Murphy, Co-Head of Derivative Strategy at Susquehanna International Group, noted that while the investor has secured significant profits, their reinvestment suggests a continued bullish stance on Zillow’s prospects. The real estate market’s performance is closely watched, especially with anticipations around the Federal Reserve’s interest rate decisions, which could further influence mortgage rates and, consequently, the home buying market.

The investor’s strategy has made a notable impact on Zillow’s options market. The trading activity significantly elevated the call volume to 97,000 contracts, a stark contrast to the 20-day average of just 9,900. This trading pattern underscores the investor’s strong conviction in Zillow’s potential for continued growth in the coming months.

This article was originally published on Quiver Quantitative