BYND Option Pricing

BYND option pricing is getting out of hand

BYND option pricing is getting out of hand.  Or is it? BYND managed to post some decent earnings last week but few people thought they were going to be that good. Any stock up $65 right after the IPO should give investors pause and especially when the company is still losing .14 per share per quarter. Let’s not quibble about earnings since very little of what is happening with BYND has to do with the company making money.  It is all a mechanical squeeze and it shows no signs of abating.

Call and Put combinations are priced out of sight

BYND option pricing is set up for a huge short squeeze.  How do I know?  Just look at the ATM combination one month out.  The BYND Jul 165 call is offered at 22.50 and the put is bid 35.80.  That means the liquidity provider with sell stock 165-13.30 = 151.70.  BYND closed at 168.10 today so the LP would incur and immediate loss buying puts and selling calls on their own markets. Just subtract the combination value from the strike. There has to be a way out for them.

Option Demand is sell calls and buy puts

Short sellers that wanted to short BYND for $70-90 are finding themselves in a pickle with less shares available and hyperbolic stock price moves.  There simply is not enough liquidity to support the short interest on a stock with a very low float.  Implied volatility is up near 175% which to be honest looks reasonably priced with a $26 underlying move.  I was seeing retail borrow rates at 300+% per year in chat rooms today.  That means it would cost a retail customer about $42 per contract to short BYND.  That is the broker dealer saying to the customer “Don’t short this stock.”

This is the beginning of the squeeze, not the end

I expect BYND to get worse not better.  Higher and higher volatility and volatility in the borrow rate will create more chaos. Borrow rates can get higher but not too much higher but a quick drop in the price is too much to expect at this time.  I would wait until thing cools off and then start buying cheap put flies.

Follow Andrew@optionvol You can hear Andrew on Option Block every week. Follow Mark@optionpit You can hear Mark on Volatility Views every week.  Volatility View Crystal Ball is on Friday’s.

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