Unusual activity in LYFT Inc (NASDAQ:LYFT) put options today has garnered attention, possibly linked to Lyft’s recent announcement regarding its expectation of positive free cash flow in 2024. This revelation sheds light on the underlying value of LYFT stock, prompting speculation on the motives behind the put activity, which may stem from short sellers as an income play.
Currently trading at $18.35, the Barchart Unusual Stock Options Activity Report reveals significant put options trading at the $17.00 strike price, with over 2,900 contracts traded expiring on March 22, just over two weeks away. This suggests a bearish sentiment, anticipating a potential decline of over 7.35% within the specified timeframe.
However, an alternative perspective suggests that short sellers of these puts may believe the stock will maintain its current level or even rise. By securing a premium of 41 cents per contract, investors can immediately receive a yield of 2.41%, translating to $118,900 income on 2,900 contracts with a cash-secured amount of $4.93 million.
The rationale behind this short sale-initiated trade is further supported by Lyft’s promising outlook. With Lyft expecting to convert approximately half of its adjusted EBITDA into free cash flow, based on Q4’s 1.8% adjusted EBITDA margin and projected revenue of $5.11 billion for the year, Lyft could potentially generate $46 million in free cash flow in 2024.
This anticipated free cash flow could substantially impact Lyft’s valuation. Assuming Lyft pays out 100% of this free cash flow as a dividend, the stock could yield at least 0.50%, surpassing Meta Platforms’ recent dividend yield of 0.10%. Consequently, Lyft’s market cap could soar to $9.2 billion, reflecting a potential upside of over 36.4% from its existing $6.74 billion market value.
In essence, the put option activity in LYFT stock may serve as a signal, highlighting its underlying value and potential for significant growth.
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