Warby Parker’s Unusual Options Activity Points to a Covered Call Bet: Bullish on Growth, Cautious on Valuation

After yesterday's bounceback -- all three major U.S. indices were up nicely: S&P 500 +1.69%, Dow Jones Industrial Average +0.61%, and Nasdaq Composite +1.14% -- you might have expected a big day in the options markets.

Options volume on Thursday was 62.78 million, 284,364 less than the 90-day average. Single-leg trades accounted for 52% of the volume, slightly below the typical day, with traders/institutions making up 56% of the trades. Meanwhile, calls outnumbered puts, 55% to 45%, a bullish confirmation.

Yesterday's unusual options activity was pretty tame, with only one option with volume 100 times or more than open interest. That distinction went to biopharmaceutical firm Biohaven (BHVN) at 105.66.

Sifting through yesterday's unusual options activity, eyewear company Warby Parker's (WRBY) trades stand out, though not for volume. It had 3,566 contracts traded yesterday, 31 fewer than the 30-day average. However, the Put/Call volume ratio of 0.12 was extremely bullish.

In today's unusual option activity commentary, I dig into why I find WRBY's options trades from yesterday so interesting.

Have an excellent weekend watching the NFL's second week.

The Dec.18 $22.50 call had a Vol/OI (volume-to-open-interest) ratio of 13.85. That wasn't nearly high enough to make the top 25, but it was over 10, so, at least for this particular call, considerably higher than the open interest entering Thursday's trading. The 1,510-contract volume accounted for 42% of Warby Parker's option volume.

The options flow shows only three trades of 10 contracts or more, so much of the trading was from smaller retail investors. I'm interested in the two Dec. 18 $22.50 call trades.

The two trades accounted for all but 10 contracts traded on the $22.50 strike. They happened at the same time, so it was one trade split into two parts. The TLFT code stands for "Tied Leg Floor Trade," meaning these were options trades on the physical trading floor tied to a stock trade.

I'll get to the rest of the trade commentary shortly. First, I want to consider why someone would be bullish about Warby Parker stock.