July22,2019 BARRON’S M7
The Striking Price
Options
A Beyond Meat Earnings Play
By Steven M. Sears
AFTER RISING SO DRAMATICALLY SO QUICKLY,
Beyond Meat ’s stock is so well done that
investorsmightbeforgivenforconcluding
there’s no juice left in the trade.
Theplant-basedproteincompany’sstock
was priced at $25 in its early May initial
public offering, opened at $46, and then
traded as high as $201.88. The stock is up
some580%atitscurrentprice,whichmakes
the stock market’s almost 20% return this
year seem like small beer.
Yetinvestorsremainunusuallybullishon
BeyondMeatstock(ticker:BYND),whichis
tradingaround$177aheadofthecompany’s
release of second-quarter earnings on July
29. The sentiment is fairly incredible at a
timewhenmostinvestorsareafraidoftheir
ownshadowsandsitarounddebatingwhat
may happen to stock prices after the Fed-
eralReserve’srate-settingcommitteemeets
at month’s end.
“BeyondMeatisthenew Tesla [TSLA]
andthemarket’slatestcultstock,”Michael
Schwartz,Oppenheimer&Co.’schiefoptions
strategist, told Barron’s.
To be sure, Beyond Meat is a different
kindofstockatpreciselytherighttime.In-
vestors want a new theme to focus on so
theydon’thavetothinkaboutalloftheold-
worldworries,likeeconomicdataandtrade
wars.Theurgetoescapeissopowerfulthat
investorsareevenwillingtoforgetthatjus-
tifying a $168 stock price for Beyond Meat
usingadiscounted-cash-flowanalysismeans
modeling $4.9 billion in 2029 sales, rather
than the $3.5 billion currently assumed by
JPMorgan’s Ken Goldman.
“Is $5 billion in sales in 10 years out of
thequestion?No,butit’snotlikely,either,in
ourview,”Goldmanwroteinarecentclient
report.“Similarly,wecouldmodel2029gross
marginincreasingto43.3%versusthe35.5%
weexpect;this,toowouldleadto$168.But
the food group’s median is only 29%.”
Thoughthevaluationargumentprompted
GoldmantogivethestockaNeutralrating—
whichmightbeinterpretedasindicatingthe
bankistellingclientstosellthestockitjust
tookpublic—theoppositeistrue.Inthenear
term,hetoldclientsheis“increasinglyopti-
mistic” on the stock and he would trade it.
The last time Beyond Meat reported
earnings, in early June, the stock surged,
rising some 100% and pushing above $200.
Ontheearningscall,thecompany’smanage-
mentsaid2019full-yearsaleswouldbe$210
million, about 2% higher than Wall Street
wasexpecting—andthattriggeredabuying
stampedethatisestimatedtohavecostthe
legion of short sellers aligned against the
stock as much as $1 billion.
It’simpossibletoknowwhatwillhappen
when the company next reports. Most sea-
sonedinvestorsadmittradingearningscan
be like flipping a coin. But if you are com-
fortable with risk and volatility, Beyond
Meat is a must-trade ahead of earnings.
Whenthestockwasaround$172.99,JP-
Morgan’s derivatives strategist, Shawn
Quigg, recommended investors consider
buyingBeyondMeat’s$175calloptionsthat
expire Aug. 2 for $10.30. (Calls increase in
valuewhentheunderlyingsecuritypricein-
creases.)Ifthestockisat$210atexpiration,
thecallisworth$35.Ofcourse,ifthestock
expires below the call strike price, the
money spent on the call is lost.
The stock has since rallied above the
strike price. Investors who think the stock
willrallyhighercouldconsiderbuyingcalls
that are slightly above the current stock
price and that expire Aug. 2.
Tastytrade, an options education website,
recently launched Quiet Foundation, a free
onlinerisk-analysisprogram.Werecognize
theironyofmentioningriskmanagementin
thiscolumn.Butanincreasedawarenessof
risk unites all investors.
Investors who upload their portfolio to
thewebsitegetareportthatevaluateskey
risk factors, including portfolio diversifica-
tion,theprobabilityoflossesorgainswithin
ayear,howwelltheirinvestmentsfaredrel-
ative to the S&P 500 index, and how much
riskwasassumedrelativetothebenchmark.
Other measures focus on net opportunity
value,whichidentifiesvolatilepositions—and
even position liquidity—which could prove
critical if the Fed startles markets.
Equity Options
CBOE VOLATILITY INDEX
VIX Close VIX Futures10
15
20
25
30
35
40
A SO NDJ FMAM J JDaily Values Source: CBOETHE EQUITY-ONLY PUT-CALL RATIO
Put-Call Ratio S&P 500 Index50
80
110
140
170
200
230
260
A SO NDJ FMAM J JSource: McMillan Analysis Corp.SPX SKEW
Implied volatility %7
8
9
10
11
12
13%
A SO NDJ FMAM J JSource: Credit Suisse Equity Derivatives StrategyNDX SKEW
Implied volatility %8
9
10
11%
A SO NDJ FMAM J JSource: Credit Suisse Equity Derivatives StrategySkew indicates whether the options market expects a stock-market advance or decline. It measures the difference
between the implied volatility of puts and calls that are 10% out of the money and expire in three months. Higher
readings are bearish.Week'sMostActive
Company Symbol TotVol Calls Puts AvgTotVol IV%ile RatioBlue Apron APRN^1050916161143480312471 33.6
Alexco Resource AXU^2306223670156100 14.8
First Horizon National FHN 17913 16755 1158 1460 18 12.3Big Lots BIG 31942 23679 8263 3348 88 9.5
Eagle Bancorp EGBN^24411362107925694 9.5
JB Hunt JBHT^334511554017911404454 8.3
Domino's Pizza DPZ 59706 31146 28560 7504 14 8.0WPX Energy WPX 83359 65865 17494 10424 52 8.0
Jagged Peak JAG^491675484164092 7.7
Cintas CTAS^1330957507559177633 7.5
Fortuna Silver Mines FSM 18255 16976 1279 2636 97 6.9CSX Corp. CSX 182122 97034 85088 28572 13 6.4
Gain Capital GCAP 6271 5464 807 996 94 6.3
Skecher's SKX^7955248354311981348097 5.9
Texas Capital Bancshares TCBI 5820 1190 4630 992 24 5.9Textron TXT 13737 8531 5206 2344 27 5.9
Range Resources Corp. RRC 134688 29624 105064 23972 99 5.6
PetMed Express PETS^238631281111052440498 5.4
Galapagos GLPG 2465 1366 1099 468 15 5.3Thistableofthemostactiveoptionsthisweek,ascomparedto average weeklyactivity–notjustrawvolume.Theideaisthatthe
unusuallyheavytradingintheseoptionsmightbeapredictorofcorporateactivity–takeovers,earningssurprises,earningspre-
announcements,biotechFDAhearingsordrugtrialresultannouncements,andsoforth.Dividendarbitragehasbeeneliminated.In
short,thislistattemptstoidentifywhereheavyspeculationistakingplace. Theseoptionsarelikelytobeexpensiveincomparisonto
theirusualpricinglevels.Furthermore,manyofthesesituationsmayberumor-driven.Mostrumorsdonotprovetobetrue,soone
shouldbeawareoftheseincreasedrisksiftradinginthesenames
RatioistheTotVoldividedbyAvgTotVol.IV%ileishowexpensivetheoptionsareonascalefrom0to100.Source:McMillanAnalysis