For quite some time, I’ve been a critic of online dating service Bumble (NASDAQ:BMBL). While I appreciated its social empowerment ethos, it arguably got in the way of business. However, in November, I switched my tune based on interesting options trading developments. Sure enough, traders are still swiping right on the underlying platform. Additional dynamics make me still bullish on BMBL stock as a speculative idea.
The Bulls Highlighted a Derisked Opportunity in BMBL Stock
Last year, I shared a bearish outlook on BMBL stock. At the time, Bumble certainly enjoyed potential fundamental catalysts. In particular, a spike in loneliness materialized due to the social isolation which the COVID-19 crisis imposed. With more people eager to reclaim their socialization activities, BMBL appeared to offer an upside opportunity.
However, I took issue with the company’s ethos. Under the Bumble app, women (in traditionally oriented relationships) must make the first move. According to the company’s mission statement, putting the impetus on women better facilitates equal power structures in relationships. In other words, the directive seeks to normalize women as having agency over every aspect of their lives.
You’re not going to find too many folks who disagree with the validity of that message. However, it also essentially stymies 50% of the addressable market because men must wait. And who knows? They might be waiting forever if the female users happen to be exceptionally selective, leading to departures for other platforms.
Given this unnecessary self-imposed hindrance, I’m not surprised that BMBL stock performed so poorly since its public market debut. However, in October, big block trades for sold $10 puts – which expired in December – materialized, which raised eyebrows.
Basically, these institutional traders took on a bet that BMBL stock will not fall below the $10 strike price by the expiration date of December 15. Otherwise, the put writer (seller) must fulfill the terms of the contract; that is, purchase BMBL shares at $10.
At the time, I viewed the $10 price as a technical bottom because that’s where major entities were willing to dive into BMBL stock. However, the risk underwriters didn’t have to worry. Shares bottomed on November 1, coincidentally at the time my article was published. Since then, BMBL has generally moved higher – and it could move higher still.
Sold Calls Might Fuel a Squeeze Higher
While October saw more major entities adopt an optimistic look for BMBL stock, in November, many traders turned skeptical. Sure enough, several market participants bought put options against Bumble, which gives holders the right (but not the obligation) to sell the underlying security at the listed strike price.
However, the catalyst that could potentially drive BMBL stock northward is the sold call. Specifically, on November 2, a major entity (or entities) sold 556 contracts of the April 19 ’24 12.50 call. At the time of the transaction, open interest stood at 571 contracts. As of the end of December, open interest had increased to 754 contracts.
Therefore, the available evidence suggests that the bears have not yet unwound the position. That’s intriguing for bullish speculators because BMBL stock increased by nearly 10% since the bears sold the calls. More importantly, if shares continue to march higher, the dynamic may force the risk underwriters into an uncomfortable position.
Again, traders that sell options must fulfill the terms of the contract. In this case, the call writers would be obligated to buy BMBL stock at $12.50. The thing is, if the short sellers do not already own enough BMBL to cover the contract (556 calls multiplied by 100 — 55,600 shares), they risk uncapped liabilities.
That’s because no upside limit exists for publicly-traded securities. So, call writers may be forced to buy Bumble stock at higher and higher prices, only to be forced to sell shares at $12.50.
Adding to the pressure, both BMBL’s short interest and short interest ratio (the number of days required to unwind the direct short position based on average trading volumes) have been inching higher in recent days. Stated differently, BMBL bears risk getting squeezed in both the open market and the options market.
Mostly Pure Speculation
As for whether BMBL stock represents a long-term contrarian investment, that’s arguably too difficult to state. For example, shares trade at a forward earnings multiple of 40.98x. Nevertheless, it’s challenging to say whether that actually means anything. Unfortunately, Bumble doesn’t offer consistent profitability. So, valuation metrics symbolize a crapshoot.
Therefore, the picture is clear. If you’re looking for a short-term speculative opportunity, BMBL stock could do the trick because of its potential to shock the bears. However, Bumble needs to prove itself before I can label it a true investment opportunity.
Is BMBL Stock a Buy, According to Analysts?
Turning to Wall Street, BMBL stock has a Moderate Buy consensus rating based on 13 Buys, five Holds, and zero Sell ratings. The average BMBL stock price target is $18.97, implying 30% upside potential.
The Takeaway: BMBL Stock is a Quick Bite, Not a Full Meal
If you’re looking to scalp a quick profit, BMBL stock offers a compelling drive-thru lane. With contrarian bulls pushing up shares, pessimists in both the open and options market could get squeezed out of their positions. However, the company would need to address certain business vulnerabilities, such as inconsistent profitability, before it could be called a true investment.
