Say what you will about the excitement surrounding the recent Airbnb (NASDAQ:ABNB) IPO, but it’s been downright boring from a trading perspective. Perhaps we’re asking too much of the freshly-minted stock. After all, it’s only been a month since its debut, and along the way, a mere two pivots have formed. It’s not even enough to create a trend. As with all its predecessors, this is likely an Airbnb stock problem solved with time.
The infancy stage of public companies is always a riskier time to play. Not only has a trend not formed, but we also don’t even have enough data to string together a 20-day moving average, let alone something more substantial.
The late-December swing high succeeded in taking out the IPO-day high, but only momentarily. We never closed above the threshold, which reinforces the significance of $170 as a resistance zone. That remains the level to breach if a bona fide uptrend is going to take root. Until then, bulls are playing the tricky game of bottom fishing if they’re casting a line here.
In other words, buyers face the difficult task of trying to time the next swing low, then hope that it’s followed by a powerful enough advance to justify the whole endeavor.
Enter Options Contracts for Airbnb Stock
One bright spot is that listed options were quick to come to market and now provide countless paths for placing bets on Airbnb stock. They’ve grown in popularity with open interest rising to the hundreds across a vast array of strikes.
The increased participation tightens bid-ask spreads and otherwise improving market liquidity. That means it’s easier to get orders filled near the midpoint and avoid the slippage that’s so common with illiquid products.
As far as expiration choices go, weeklys are available alongside the usual string of monthly contracts. However, be forewarned that while liquidity is sufficient on the monthly front, it’s sorely lacking in the weeklys. I’d avoid them for the time being.
What of Airbnb Stock’s Relative Performance?
Relative performance provides another avenue of analysis for Airbnb stock. If the stock has been soaring while the S&P 500 and Nasdaq have been sinking, then we’d say it’s outperforming or exhibiting relative strength. Alternatively, if the market has climbed while ABNB has stayed put or fallen, then we’d say it’s underperforming or suffering relative weakness. The latter is obviously bullish; the former bearish.
If we look at its post-IPO performance, it’s essentially flat. Comparatively, both indexes mentioned above have moved higher. Of the two, Airbnb is exhibiting a stronger correlation to the Nasdaq, however. Still, it’s underperformed. And that suggests there are far more profitable ventures elsewhere.
Bet With Bulls … If You Must
While I’d like to end with a ringing trade endorsement, the conditions leave much to be desired. Bear trades are a no-go, if for no other reason than trying to short in this market has been a quick way to light your money on fire. If I had to build a trade on ABNB, it would be a bull call spread to game the next upswing.
Prices are down for nine of the last ten trading sessions. That suggests we’re closer to the next pivot low than pivot high. Watch for a break of the prior day’s high ($149) as your trigger. Once that happens, consider entering the following spread.
The Trade: Buy the February $150/$160 bull call for around $3.50.
The risk will be limited to your original $3.50 cost, and the reward will be $6.50.
On the date of publication, Tyler Craig did not have (either directly or indirectly) any positions in the securities mentioned in this article.
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